Joint Testimony to Senate Judiciary Subcommittee on Competition Policy, Antitrust, and Consumer Rights

Dear Chairwoman Klobuchar and Ranking Member Lee, 

On behalf of the nearly 100,000 combined members of the National Multifamily Housing Council (NMHC)[1] and the National Apartment Association (NAA),[2] we are writing regarding the hearing titled, “Examining Competition and Consumer Rights in Housing Markets” to share the insights of the multifamily housing industry. NMHC and NAA are committed to working together with policymakers and the Administration to support consumers by addressing ongoing challenges in the housing market, in particular the housing affordability crisis in the United States. 

NMHC and NAA members are focused on creating positive outcomes for renters and have demonstrated their commitment to working with a variety of communities to make housing options better. The relationship between a housing provider and a resident is already largely and appropriately regulated at the state and local levels, which consider the unique needs of local communities and their housing markets. 

Residents are the customers of the rental housing industry; thus, the professionally managed apartment industry is, by definition, resident centered. The relationships between housing providers and residents, the community and the broader housing market are governed by layers of statutes, case law, regulations, and private contractual agreements, all of which provide specific protections and responsibilities. This includes renter protections in the application process, in building codes, contracts, landlord and tenant, fair housing, eviction, consumer reporting and debt collection laws, as well as enforcement provisions. Lease agreements outline the rights and responsibilities between residents and housing providers and are enforced by state and local courts. 

Housing Affordability and the Market Dynamics of Supply and Demand 
While these protocols are well established, there simply are not enough rental units to meet the growing consumer demand. According to research conducted by Hoyt Advisory Services and Eigen10 Advisors, LLC, and commissioned by NMHC and NAA, residents across the United States are counting on the construction of 4.3 million new apartment homes by 2035.  Other key findings from the study include: 

• Shortage of 600,000 Apartment Homes. The 4.3 million apartment homes needed includes an existing 600,000 apartment home deficit because of underbuilding after the 2008 financial crisis.
   
• Loss of Affordable Units. The number of affordable units (those with rents less than $1,000 per month) declined by 4.7 million from 2015 to 2020.  
   
• Homeownership. Apartment demand also factors in a projected 3.8 percent increase in the homeownership rate. 
   
• Immigration. Immigration is a significant driver of apartment demand, and levels tapered before the pandemic and have remained low. A reversal of this trend would significantly increase apartment demand.

For more information on this research, please visit www.weareapartments.com 

It is important to note that NMHC and NAA members are reporting that current economic and regulatory challenges are causing them to cut back significantly on development activities, in some cases, by as much as 50 percent. This trend will have long-term negative impacts on the supply of affordable housing if it continues. NMHC’s October 2023 Quarterly Survey of Apartment Market Conditions also indicates the following troubling statistics, all of which worsened from the July 2023 Quarterly Survey:  

• Over half of respondents (57 percent) reported lower sales volume from three months prior.  
   
• 64 percent of respondents reported equity financing to be less available than three months ago, marking the seventh straight quarter of less availability; and  
   
• 83 percent said it was a worse time for mortgage borrowing compared to three months earlier, the ninth consecutive quarter in which debt financing became less available.   

Additional Federal Housing Regulations Increase the Cost of Housing and Exacerbate the Housing Shortage 

In January 2023, the Administration released the White House Blueprint for a Renters Bill of Rights.  This effort called on multiple agencies, including Consumer Financial Protection Bureau (CFPB), Department of Justice, Housing and Urban Development (HUD), Department of Defense, and Federal Housing Finance Agency (FHFA), to “development policies and practices that promote fairness for Americans living in rental Housing.” Our members strive to create thriving communities and successful resident experiences. As such, we appreciate the importance of federal, state, and local laws and regulations that are already in place that create rights and responsibilities for residents and housing providers alike. 

Implementing an additional layer of federal regulation on top of what is already an overly complicated set of federal, state and local compliance responsibilities for housing providers specific to a given market is ill advised and will ultimately hurt renters. Doing so would serve to increase market uncertainty, and disincentivize investment in housing, especially federally backed or federally-assisted affordable housing, where there is often greater risk and smaller margins.  Instead, we should focus on solutions that encourage new housing supply and remove the true barriers to housing construction, preservation and rehabilitation.

As part of the Administration’s call to action, several federal agencies requested public input as they consider federalizing landlord and tenant requirements and expanding federal regulation of the housing market. NAA and NMHC provided industry perspective in comments for all of these requests, including the FHFA’s request for input on expanded landlord and tenant requirements for enterprise-backed properties [3], HUD’s advance notice of proposed rulemaking on Section 504 regulations [4], and CFPB and Federal Trade Commission’s (FTC) request for information on resident screening and consumer reporting in rental housing [5].  Additionally, our organizations work closely with our coalition partners to provide broader real estate perspective as the Administration considers changes to federal policy, including coalition letter signed by 18 real estate organizations responding to the FHFA Request.    

The central theme in these comments is that existing federal, state and local laws already heavily regulate the relationship between a rental housing provider and their residents and provide protections to both parties in housing. Additional federal layers of regulation will only increase complexity and cost while creating disincentives for new development of much-needed rental housing. Rental housing is a low-margin business. On average, for every rent dollar collected in the U.S., $0.93 is allocated towards the essential expenses necessary to operate rental communities. These expenses include property maintenance, employee salaries, property taxes, insurance, and capital improvements. This financial structure underscores the industry's commitment to providing quality housing while also reinforcing its vulnerability to operating cost increases. With such a slim margin, any substantial rise in operating costs can profoundly impact the sustainability of rental housing providers, potentially affecting housing stability for millions of Americans. [6] 
 
Sustainable Solutions to Housing Affordability Challenges 

1. Deploy the Housing Supply Action Plan 

• NMHC and NAA urge Congress to work with the Biden Administration to implement provisions in the Housing Supply Action Plan issued in May 2022 that aim to address the myriad challenges to develop new housing and would dramatically increase much-needed supply, such as: 
   
• Reward jurisdictions that have reformed zoning and land-use policies with higher scores in certain federal grant processes, for the first time at scale;  
   
• Deploy new financing mechanisms to build and preserve more housing where financing gaps currently exist;  
   
• Expand and improve existing forms of federal financing, including for affordable multifamily development and preservation; and 
   
• Work with the private sector to address supply chain challenges and improve building techniques.  
   

2. Reduce Barriers to Development 

Rental housing providers stand ready to help meet current and future demand but cannot do so alone. Federal, state, and local policymakers also must play a role. Regulatory, administrative, and political obstacles at all levels of government prevent us from delivering the housing our country so desperately needs.  

Even in communities that want and desperately need rental housing development, we face hurdles like zoning restrictions, rent control and other onerous local requirements (e.g., building code provisions that have nothing to do with health or safety, land or infrastructure donation requirements and ill-fitting transportation and parking mandates). All of which account for an average of 40.6 percent of multifamily costs further impacting affordability – according to research released by NMHC and the National Association of Home Builders (NAHB). 

Although smart regulations can play an important role in ensuring the health and wellbeing of the American public, the NMHC-NAHB research found that many regulations can go far beyond those important goals and impose costly mandates on developers that drive housing costs higher. Easing regulations could go a long way to addressing the housing affordability challenges faced by communities across the nation while making critical investments in infrastructure of all types. Looking forward, at a macro level, we urge Congress to redouble its efforts to incentivize states and localities to: 

• Reduce barriers to housing production and rehabilitation; 
   
• Streamline and fast track the entitlement and approval process;  
   
• Provide density bonuses and other incentives for developers to include workforce  
   
• units in their properties;  
   
• Enable “by-right” zoning and create more fully entitled parcels;  
   
• Defer taxes and other fees for a set period of time;  
   
• Lower construction costs by contributing underutilized buildings and embrace  new technology driven construction advancements; and  
   
• Encourage higher density development near jobs and transportation.  

3. Reject Price Controls  

Decades of research and real-world case studies show that rent regulation devastates rental housing and harms affordability. Rent regulation will not add a single new unit of housing. In fact, it has the opposite effect. Rent controls distort the housing market by deterring or discouraging the development of rental housing and investment in maintenance and rehabilitation.  

With little to no ability to earn a profit, developers and investors will shift their investments to other non-rent regulated jurisdictions—the NMHC/NAHB cost of regulations report indicated 88 percent of respondents would avoid working in jurisdictions with rent control. A study conducted by ndp | analytics on behalf of NAA from December 2022 to February 2023 reveals significant adverse effects of rent control on housing providers and developers in markets with rent control policies. Interviews with entities ranging from large firms to small mom-and-pop businesses indicate that over 70% have been compelled to alter their investment strategies, including decreased investments, relocation of development plans, or complete withdrawal, due to these policies. This underscores the substantial influence of rent control on real estate investment and development activities. 

In practice, rent control policies have the effect of increasing the cost of all housing by forcing a growing community to compete for fewer housing units and reducing the quality of rental housing. This is why NMHC, NAA and other national real estate trade organizations recently sent a letter to Director Sandra Thompson urging FHFA to reject imposing rent regulation as a condition of Enterprise-backed financing. 

NMHC and NAA encourage lawmakers to promote proven alternatives to rent control that address the critical affordable housing shortage, making rents more affordable to lower-income residents and encouraging development of new housing at a variety of rental levels. 

Download a PDF of this Letter

 

[1] Based in Washington, D.C., NMHC is a national nonprofit association that represents the leadership of the apartment industry. Our members engage in all aspects of the apartment industry, including ownership, development, management and finance, who help create thriving communities by providing apartment homes for nearly 40 million Americans, contributing $3.4 trillion annually to the economy. NMHC advocates on behalf of rental housing, conducts apartment-related research, encourages the exchange of strategic business information and promotes the desirability of apartment living. 

[2] NAA serves as the leading voice and preeminent resource through advocacy, education, and collaboration on behalf of the rental housing industry. As a federation of 141 state and local affiliates, NAA encompasses over 92,000 members representing more than 11 million apartment homes globally. NAA believes that rental housing is a valuable partner in every community that emphasizes integrity, accountability, collaboration, community responsibility, inclusivity, and innovation. 

[3] See NAA and NMHC’s joint comment letter 

[4] See NAA, NMHC, National Leased Housing Association, and Council for Affordable and Rural Housing’s comments 

[5] See NAA and NMHC’s joint comment letter 

[6] Breaking down one dollar rent 2023