Takeaways for rental housing providers after President Biden’s State of the Union address

We’ll admit that we are out of our element. As a boutique law firm managing landlord-tenant relationships, we are quite busy handling the practical, day-to-day, micro details of accomplishing the goal of helping clients power through their real estate challenges. But we do have to look at the bigger picture sometimes, so please indulge us.

President Biden’s address was imbued with a spirit of populism we haven’t witnessed since Truman, with POTUS sounding more like a consumer advocate than the commander-in-chief. It’s surprising, then, that in a speech with more than 7,200 words, there was scarce mention of rental housing.

The President did call for “helping veterans afford the rent,” and made a fleeting reference to the housing dearth by saying, “Let’s also finish the job and get more Americans access to affordable housing.”

 

Alicia Huey couldn't agree more.

As the chair of the National Association of Home Builders, she thinks that President Biden squandered the opportunity to lay out his vision to combat the housing affordability crisis and reaffirmed the NAHB's commitment to boost production.

Get her takes →

She is not alone. There is a consensus that we need to build new housing, but this takes a level of political will and resources that have yet to be mustered.

 

It's been said that all politics are local, but some are more local than others.

There has been a combination of carrots and sticks to spur housing production, but local governments can't seem to get the message, so the state has resorted to blunt force.

Lawmakers have put away the machete and taken the scalpel to regulations that stand in the way of building new housing, but it hasn't made much of a difference.

Read our earlier article: Newfound ability to build fourplexes fall on deaf ears »

So the state has told local governments to get out of the way of new housing production or face consequences. The biggest stick is that if goals are not met, municipalities will lose control over local development - developers can try to build projects unconstrained by local zoning restrictions.

Primarily, politicians want to control, so this is a powerful motivator. It seems to us that there is a sense of urgency now for local policymakers and regulators to get with the program.

 

Most California cities have flunked California's mandate to articulate a plausible plan for new housing.

Close to home, Berkeley's Housing Element was given a cold shoulder by the California Department of Housing and Community Development. The city fell short of removing permit constraints and upzoning wealthier neighborhoods and was told to go back to the drawing board.

 

 

Oakland, meanwhile, did not offer a convincing plan to meet its targets over the next eight years. The city's path to building 26,000 new units lacked details on why proposed sites are primed for development. 

Ironically, while San Francisco is considered to have the most onerous restrictions to build, its plan to build 82,000 new homes won the approval of state watchdogs. This ambitious charter is met with a great deal of skepticism, however. 

While the State of the Union brought up affordable housing, market-rate housing has been largely left out of the public discussion. Having an economically diverse housing stock will allow for the fluid nature of people moving on and lower the rents in some tired, less aesthetically pleasing buildings. 

 

An FDR-like New Deal for tenants? 

In the days leading up to the State of the Union, we thought that the President would make a sales pitch for a renter's bill of rights that has been proposed, but there was nary mention of it in the address.

The White House has said it wants to ensure safe, quality, accessible, and affordable housing, make leases transparent and fair, amplify the education, enforcement, and enhancement of rent rights, and curb “egregious” rent increases. Also on the list is giving tenants the right to organize and pour more resources into eviction prevention, diversion, and relief. Translation: more free legal representation to tenants facing eviction.

Many of the federal initiatives, if they come to pass, would be a carbon copy of tenant protections already in place in California, so we are not paying much attention to this chatter. It’s analogous to the federal eviction moratorium that had no impact on California landlords because they were subject to a more restrictive ban on evictions.

 

The Biden Administration is groping for a way to strengthen tenant protections through executive fiat and circumvent a Republican-run House of Representatives.

There is a novel idea that Fannie Mae and Freddie Mac could prohibit egregious rent increases. As a bit of trivia, more than 28% of the national housing stock of rental units is federally financed.

Meddling with rent amounts is probably illegal and has little chance of federal passage. Even if it did, California already has a mechanism in place(AB-1482) to curb excessive rent hikes, so we will ignore this for now, as well.

 

We want to put an asterisk, though, on Section 8. 

If there is anything being cooked up in Washington that comes to fruition, it would apply to federally subsidized housing. Of course, there has always been a love-or-hate relationship with Section 8. If predictions of a recession come to pass, there will be a renewed interest in guaranteed rental income by Uncle Sam.

 

So what are the solutions to housing woes? 

For that, we turn to people with their fingers on the pulse of the economy like Jay Parsons, the chief economist for RealPage. He laments what was not included in Biden’s speech and offers a five-pronged plan in the unlikely event he would be asked to be an advisor. These suggestions piqued the interest of other great economic minds and sparked a debate on LinkedIn.

 

Economists we are not, but we manage rental relationships, and we do it well. By optimizing the income of our clients, we fit somehow in the larger scheme of things.