Federal Advocacy Outlook: The End of the 117th and Beginning of the 118th Congress

BY GREG BROWN AND NICOLE UPANO, NATIONAL APARTMENT ASSOCIATION

Here’s what the rental housing industry can expect from the new, divided U.S. government.

While Republicans, as predicted, will take over control of the House of Representatives in 2023, no one foresaw a razor-thin fourseat majority (222–213). In the Senate, Republicans were only given a roughly 50/50 chance of taking the chamber, but few expected them to not only pick up zero seats but lose an incumbent seat when Pennsylvania Lt. Governor and Senator-elect John Fetterman defeated Mehmet Oz to replace retiring GOP Senator Pat Toomey. This pick-up gave the Democrats their majority, which was further padded with the Georgia runoff when Senator Raphael Warnock (D) won re-election over challenger Herschel Walker (R). The widely assumed red wave never reached shore, but it only takes 218 seats in the House to secure a majority, so despite the narrow margin, a divided government returns to Washington next year. Much work remains to be done — maybe — before sine die adjournment. Chief among that work is funding for the federal government. Without an end-of-the-year budget bill, Congress will have to pass a temporary “continuing resolution” that only extends current funding for all departments, including Defense, State, HUD, etc., into some point next year. Other “mustpass” items are the National Defense Authorization Act, the National Flood Insurance Program, domestic disaster relief and support for the Ukrainian war effort.

While it is not a sure thing, chances seem high that all of these items as well as some expiring tax provisions could be combined into one “omnibus” legislative package and sent to the President before the end of the year. Should a deal be in the offing, the National Apartment Association (NAA) is pressing Congress to attach key proposals to address housing affordability, including reforms to Section 8 in the Choice in Affordable Housing Act as well as removing local barriers to development.

What can we expect from a divided government?

Is this good or bad for providers of rental housing? No surprise, the proverbial bag is mixed. Controversial legislation will have a hard time passing either chamber, which could block bad bills, but also make the pathway harder for legislation NAA supports. Depending on how the end of the year shakes out, NAA could continue its quest for reforms to Section 8, an end to the CARES Act notice to vacate requirement and more federal intervention to reduce development barriers.

As it has been discussed before, divided government means that federal regulatory activity is ascendant. And, based on recent activity by the White House, we can expect the Biden Administration to pursue its agenda via HUD, the Federal Housing Finance Agency, the Consumer Financial Protection Bureau, the Federal Trade Commission and the Department of Justice on matters like fair housing, resident screening, evictions, anti-price fixing or even, anti-price gouging regulations and more. Be assured, however, that the new Republican majority in the House will be conducting aggressive oversight of regulatory activity by the administration.

What the industry is doing

Speaking of the Biden Administration’s agenda, NAA, alongside a wide coalition of rental housing advocacy organizations, continues to speak directly to White House policy leaders about the impacts of imposing federal landlord and tenant protections. NAA Chair of the Board Don Brunner, NAA President and CEO Bob Pinnegar and members of the NAA government affairs team have participated in two calls organized by the Domestic Policy Council and including representatives of HUD, FHFA and other regulators.

The goal of these discussions is to address housing instability through socalled “resident-centered property management practices.” NAA is helping the Administration understand how rental housing functions and the real-world impacts of proposals like extended notice periods on the operational and financial stability of these communities. We expect the discussions to continue with some proposal to come from the White House in the not-too-distant future.

There are still many unknowns about how the 118th Congress will function with such stark differences between the new GOP majority in the House and the Democratic majority in the Senate. As well, we only presently have clues as to where and how the Biden Administration will seek to execute its policy agenda for housing. In both arenas, NAA will navigate these unchartered waters using all of its assets to ensure the perspective of rental housing providers is clear in the minds of policymakers.

As always, your participation in that effort is crucial. There are myriad options for any member of this industry to contribute and do their part. To learn more, contact NAA Senior Manager of Grassroots Advocacy & Stakeholder Engagement Austin O’Boyle at aoboyle@naahq.org.

About the Author: Greg Brown is NAA’s Senior Vice President, Government Affairs. Nicole Upano is NAA’s Associate Vice President, Public Policy & Regulatory Affairs.

At Risk Buildings — continued from 18

ther, resulting in the displacement of even more residents fleeing to more affordable communities. This in turn, would lead to a drastic reduction in the workforce and a drop in consumer spending that would send the local economy in a downward spiral.

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Resolutions — continued from 20

The Mansion Tax

BY MERCEDES SHAFFER

Fantastic weather, safe communities, top schools, beautiful beaches. Do I need another reason why Orange County is the best place to live and own real estate? Well, I’ve got one more reason — we don’t have a “Mansion Tax.”

Los Angeles voters just approved Measure ULA, also known as the “Mansion Tax.” It imposes a one-time transfer tax on commercial and residential real estate sales valued at over $5 million. The transfer tax rate jumps from .45% for all properties, to 4% for properties valued at $5 million to $10 million, and increases to 5.5% for properties valued at $10 million and above. Apartment owners selling a $10 million property, for example, would face about $522,000 in additional taxes on the sale (after commission fees).

What does this special tax fund you might ask? It funds a tenant advocacy group that supports tenant access to legal representation to help defend them against evictions. If you’re a housing provider who has to evict a tenant for non-payment of rent, the government isn’t setting aside funds to help you. Instead, you must hire an attorney and pay out of pocket to have the attorney defend your rights, while the nonproperty-tax-paying (and likely non-rent-paying) tenants get free legal representation that is funded by the property owners. Yes, this is just one more new tax that Los Angeles residential and commercial real estate owners get to look forward to.

This is the biggest investment in tenant protections in the history of L.A., and further drives a wedge between property owners and tenants. It gives even more free resources and rights to tenants and takes away from property owners. I can’t help but wonder if this is part of a larger plan to deprivatize real estate and put housing in the hands of government.

The tax will go into effect on April 1, 2023, and without a sunset clause, it would be permanent. The group that backed the ballot measure, United to House L.A., estimates that the tax hike could generate between $600 million and $1.1 billion per year in additional aid to help Los Angeles address its homelessness problem and aid tenants facing eviction. The group states that these funds would go directly to innovative solutions to the housing crisis, including creating affordable housing and purchasing hotels for the purpose of converting them to housing. According to the proposal, non-profits, qualified affordable housing organizations, and government agencies would be exempt from the tax. Another tax by government, for government, to fund yet another bureaucracy.

The Los Angeles County RegistrarRecorder/County Clerk showed that nearly 56% of voters in the November 2022 elections approved the city ordinance, and a majority vote is all that was needed for it to pass. It’s not a surprise that this ordinance was approved by voters. In the city of Los Angeles, the majority of residents do not own real estate valued at $5 million or more, and more importantly, tenant rights groups are very vocal about their beliefs and encourage and embolden tenants to believe that they are entitled to free housing. These groups band together and fund “protesters” to wear bright shirts, hold picket signs, and make noise at city council meetings. They make their voices heard, while property owners are missing from these meetings because they are likely at work so that they can earn the money needed to pay their mortgage bills, taxes, retrofits, etc.

While Orange County does not have a mansion tax, and it seems like it could never happen here, these ideas spread fast and are more contagious than COVID. Los Angeles is not the first city to pass a mansion tax — New York also has one — and if apartment owners don’t stand together to become a political force and fight for our rights to build a business, this could happen here, too. Let’s keep Orange County a great place to own real estate, and in turn housing providers will be incentivized to continue to invest in maintaining their rental properties so that they can provide top-notch housing, which is great for tenants too!

About the Author: Mercedes Shaffer is a real estate agent with Pacific Sotheby’s International Realty and specializes in residential and commercial real estate, helping clients buy and sell apartment buildings and homes and perform 1031 Exchanges. If you would like help with buying, selling or doing a 1031 Exchange, she can be reached by phone at 714.330.9999, by email at InvestingInTheOC@gmail.com or visit her website at www.InvestingInTheOC.com . DRE 02114448