APARTMENT INDUSTRY PRIORITIES
N AT I O N A L A PA R T M E N T A S S O C I AT I O N
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N AT I O N A L M U L T I H O U S I N G C O U N C I L
PRIORITIES
1
WHO WE ARE
2
WHY APARTMENTS?
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A SNAPSHOT OF THE INDUSTRY
6
CAPITAL MARKETS
8
TAX POLICY
10
ENERGY POLICY
12
BUSINESS MANAGEMENT AND OPERATIONS
16
ENVIRONMENTAL POLICY
18
DEVELOPMENT AND BUILDING ISSUES
20
WORKFORCE HOUSING
Key
Federal issue State/Local issue
WHO WE ARE
THE VOICE OF THE APARTMENT INDUSTRY
For more than 20 years, the National Apartment Association (NAA) and the National Multi Housing Council (NMHC) have partnered on behalf of America’s apartment industry. Drawing on the knowledge and policy expertise of staff in Washington, D.C., as well as the advocacy power of 170 NAA state and local affiliated associations, NAA and NMHC provide a single voice for developers, owners and operators of multifamily rental housing. Through the partnership, NAA and NMHC weigh in on federal, state and local legislative and regulatory matters, such as housing policy, capital markets, tax, technology, energy policy, property operations, environmental issues and building codes. The 2012 Apartment Industry Priorities is a compilation of some of the apartment industry’s most important issues. The booklet is not intended to cover every issue, but rather those of broad concern. More information about these and the full range of federal, state and local issues are available on our websites, or by contacting the staff listed at the back of this booklet. National Apartment Association
National Multi Housing Council
As the voice of America’s apartment industry, NAA is the nation’s largest and leading professional organization with 55,000 members of affiliated associations representing 6.2 million apartment units. Our members are recognized industry leaders who uphold the highest integrity and business practices through our Educational Institute’s professional designations. NAA’s advocacy initiatives span legislative and regulatory public policy at all levels of government to ensure apartment homes are a national priority.
NMHC is a national association representing the interests of the larger and most prominent apartment firms in the U.S. NMHC’s members are the principal officers of firms engaged in all aspects of the apartment industry, including ownership, development, management and financing. 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.
For More Information Learn more about the apartment industry on our websites:
www.naahq.org www.nmhc.org
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WHY APARTMENTS?
THE NEW AMERICAN DREAM
A New Class of Renter Emerges
One in three Americans is a renter; while many rent single-family homes, 17 million households call an apartment home.
Housing in the United States is at a changing point. Shifting demographics have collided with new economic realities, challenging traditional concepts of home. Tomorrow’s households not only want something different from a suburban single-family home, but also need flexible housing options to adapt to the ever-changing job market. These trends add up to fewer homeowners and more renters. Yet, housing policy today hardly reflects these transforming fundamentals. Housing policy’s failure to recognize the growing demand for rental housing not only threatens the apartment sector’s ability to meet the nation’s acute housing needs but also hinders new job creation integral to economic recovery. We urge policy makers to adopt policies that respect people’s right to choose housing that best meets their financial and lifestyle needs and values apartment living to the same degree as homeownership. 2
Apartments were once thought to be the housing option of last resort; renters are increasingly middle-class households who can afford to buy but choose to rent for economic or lifestyle reasons.
Changing demographics are boosting demand for apartments. Married couples with children—the primary drivers of demand for suburban single-family houses— now make up less than 21 percent of households. Fully 70 percent of all households in the United States are childless. Almost 80 million Echo Boomers are beginning to enter the housing market, primarily as renters. As more than 75 million Baby Boomers consider downsizing, many will choose the convenience of renting. Renters will make up half of all new households in this decade and number more than 7 million households.
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Apartments Provide More Than Just Shelter
Apartments Work
Apartments represent fiscally responsible development. By tapping into existing infrastructure, apartments reduce the cost of providing public services such as water, sewer and roads. More than $100 billion in infrastructure costs could be saved nationally with more compact forms of development such as apartments.
It’s time to rebalance our housing policy and make rental housing a priority. Half of all households formed in the coming decade are likely to be renters, yet 80 percent of our housing programs and tax expenditures go to homeownership. America needs apartments because they represent:
Apartments are more environmentally friendly and sustainable than other housing types. Because of their high-density nature, apartment dwellers generate 30 percent to 40 percent fewer vehicle trips than single-family households, making apartments an important tool for climate change efforts.
Apartments help develop economically healthy communities by providing jobs and housing for much-needed workers. Harvard University researchers found that average house values were the highest in working communities with the most multifamily units.
PEOPLE. As many as 7 million new renter house- holds will be created in this decade. CHOICE. More renters are becoming renters by choice. Many can afford to buy a home but choose to rent for the financial freedom, convenience and amenities apartments offer. JOBS. Apartment construction and management creates new jobs. Apartment living gives the nation’s workforce the mobility today’s global economy requires.
Apartment Demand Surpasses Supply
While a glut of single-family housing exists, sustained under-building in the multifamily sector is driving the apartment industry toward a unit shortage. In fact, multifamily construction hit a record low in 2009 with 97,300 new starts.
The apartment industry needs to produce an estimated 300,000 units a year to meet demand; however, the industry started little more than half that in 2011. That level of production is insufficient to replace just the units lost every year to demolition, obsolescence and other factors.
Household Type
SMART GROWTH. Apartments represent sustainable, environmentally friendly development.
% of All Households
Renter-occupied
34%
Owner-occupied
66%
Source: National Multi Housing Council
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A SNAPSHOT OF THE INDUSTRY
A POSITIVE FORCE FOR JOB CREATION AND THE ECONOMY
The nation’s 98.8 million renters represent more than a third of the housing market. And their numbers are growing, with roughly half of all the households formed in the next decade likely to be renters. This rising demand is propelling apartment construction even during this latest period of economic uncertainty. Construction of apartment communities from 2006 to 2010 added an average of nearly 170,000 new apartment homes every year. The value of the new construction during these five years averaged $25 billion annually, creating an estimated 198,000 jobs.
Apartments Drive Job Growth The construction of 1,000 apartment units generates:
Moreover, apartment rental revenues total more than $153 billion annually, and apartment management, operation and leasing activities are responsible for approximately 618,000 jobs. The $2 trillion apartment industry is poised to become an even greater contributor to the economy in the future. Experts estimate that the industry needs to build roughly 300,000 new units a year to meet demand. However, recent turmoil in the financial sector has significantly slowed apartment construction activity even as rental demand continues to grow. Through November 2011, the industry began construction on 157,835 new units—only slightly more than what’s needed to replace units lost every year to demolition, obsolescence and other losses. Apartment Distribution by number of units structure
1,160 full time jobs in construction and construction related industries
$55 million in wages
5 to 9 = 30% 9%
10 to 24 = 37%
13%
25 to 49 = 11%
11%
50 to 99 = 9% 100 and + = 13%
$33 million in combined federal, state and local tax revenues and fees 30%
Source: National Association of Home Builders 37%
Source: National Multi Housing Council
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%
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Top 10 States for New Apartment Construction in 2011* (5+ units in structure; includes units for owner occupancy) States WA
NY
WI
Number of Apartments
Texas
26,311
California
19,169
New York
10,453
NJ
CA
VA
Florida
8,709
North Carolina
6,840
Virginia
6,409
Washington
6,019
New Jersey
5,278
Wisconsin
4,080
Georgia
4,013
NC
GA
TX FL
Source: U.S. Census *Through November 2011
Who Owns the Nation’s Apartments Properties
All
Individuals
46.9%
Partnerships
20.3%
Real Estate Investment Trusts
2.1%
Real Estate Corporations
5.8%
Other Corporations
3.4%
Non-Profits/Co-Ops
3.7%
Other
4.4%
Not Reported Total
Apartment construction was a positive force in the economy in 2011.* The number of apartments under construction totaled 157,835 and were valued at $14.1 billion. *Through November 2011
13.4% 100.0%
Source: NMHC tabulations of unpublished data from the U.S. Census Bureau’s 1995-96 Property Owners and Managers Survey
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CAPITAL MARKETS
ENSURING RELIABLE SOURCES OF FINANCING FOR RENTAL HOUSING
Apartment development is an extremely capital-intensive business and consequently relies heavily on financing to operate. However, tightness in credit markets has impacted multifamily housing finance in much the same way as single-family and commercial real estate lending. Traditional portfolio lenders have pulled back in an attempt to reduce the risk profiles of their investment portfolios. Securitized financing, which had provided the growth engine for the multifamily sector during the 2000s, virtually disappeared in the aftermath of the financial crisis. As a result, the federal government has taken an ever-larger role in multifamily financing, primarily through the expansion of the multifamily investments of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, and, to a lesser extent, the Federal Housing Administration (FHA). The apartment industry cannot meet the growing demand for rental housing and contribute to our broader economic recovery without a reliable supply of capital. Ensure Sufficient Liquidity for Rental Housing
It’s clear that Fannie Mae and Freddie Mac cannot survive in their current form. However, as policy makers craft solutions to fix the single-family housing problems, it’s vital to the economy to avoid cutting off a critical source of funding for the multifamily sector. In addition to providing stability in the market during times of economic volatility, the GSEs’ multifamily business has not been a burden for the taxpayer. Not only do the GSEs’ multifamily programs have default rates of less than 1 percent—a tenth of those in the single-family sector—they also have produced billions in profits for the U.S. government since conservatorship. 6
Apartment Industry Policy: As lawmakers look to reform housing finance to fix the flaws in the single-family market, they should be sure to preserve a reliable source of capital for multifamily housing in all markets at all times.
Streamline the FHA’s Multifamily Insurance Program
Following the financial crisis of 2008, virtually all private sources of capital (banks, insurance companies, pension funds and Wall Street) were sidelined. Fortunately, the Federal Housing Administration (FHA) stepped in to fill some of that financing gap. However, the agency has struggled to keep pace with the historic increase in demand for FHA multifamily financing. The result has been serious delays in the approval process. This backlog comes as FHA is also implementing significant changes in its multifamily underwriting criteria and loan processing procedures, thus creating additional challenges. Apartment Industry Policy: Lawmakers should streamline the multifamily program insurance application and approval process to ensure that adequate capital is available for apartment construction and resolve issues with the new underwriting criteria and loan processing procedures.
Support a Revitalized Secondary Market in Implementing the Dodd-Frank Legislation
The apartment industry relies heavily on the secondary commercial mortgage market to provide the liquidity to refinance roughly $30 billion to $45 billion in maturing multifamily mortgages each year. Economic uncertainty has caused capital flows from the commercial mortgage-backed securities (CMBS) market to fall; consequently, the market remains fragile. Its recovery
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largely depends on how the Dodd-Frank financial reform law is enacted and the degree to which the more than 200 regulations required by the law keep the interests of borrowers and investors aligned and capital flowing. Apartment Industry Policy: Authorities implementing the regulations called for by the Dodd-Frank financial reform law should ensure that final regulations serve both borrowers and lenders and avoid rules that discourage investor participation in the secondary market. In addition, regulators should take a broader approach in determining whether a mortgage should qualify for an exemption from the risk retention rules. In particular, the apartment industry recommends allowing a greater percentage of multifamily mortgages to qualify given the sector’s historically strong loan payment performance and the role of subordinated investors in the CMBS market.
Who Owns the $840.9 Billion in Multifamily Mortgages? Fannie and Freddie provide a third of the market liquidity Commercial Banks 22.6% 12.9%
Savings Institutions 7.3%
22.6%
Life Insurance Cos. 5.8% 11.2%
Fannie Mae 21.0% 7.3%
6.9%
5.8%
21.0%
Source: Federal Reserve Board
$279.9 billion Amount of mortgage liquidity Fannie and Freddie currently provide to the apartment industry
90% Percentage of apartment units financed by Fannie and Freddie that were affordable to families at or below local median income
10 million Number of units financed by Fannie and Freddie over the past 15 years
Freddie Mac 12.2%
$3 billion
Ginnie Mae 6.9%
The amount the GSEs’ multifamily programs have contributed to net revenues of the federal government since 2008
CMBS 11.2%
12.2%
Fannie-Freddie Fast Facts
Individuals and others 12.9%
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TAX POLICY
FOSTERING ECONOMIC STABILITY THROUGH SENSIBLE TAX REFORM
Given the nation’s spiraling deficit and debt levels, Congress is pushing to overhaul the complex tax code to help spur economic growth and generate much-needed revenue. In addition, major pieces of the tax code, including the Bush-era tax cuts, have or are set to expire, creating uncertainty for thousands of apartment firms. Some tax reform proposals, such as those affecting the taxation of partnerships and the deductibility of business interest expense, stand to unfairly burden apartment owners and renters relative to other asset classes, not only hampering firms’ abilities to operate but threatening to divert capital away from the apartment industry when rental housing needs are growing. Prevent Partnerships from Bearing Undue Tax Burdens
Economic concerns are fueling proposals to cut the corporate tax rate, currently the second highest in the world. However, some proposals plan to finance the rate cut by changing tax rules that would negatively affect partnerships, a common form of organization for apartment firms. Specifically, some policy makers have floated the idea of requiring partnerships with incomes over certain thresholds to pay tax at a higher corporate rate; others have looked to reduce credits and deductions, creating a policy under which partnerships would lose tax benefits but see no tax rate reduction. This would have an enormous impact on the rental industry, which accounts for nearly half of all partnerships. Apartment Industry Policy: Lawmakers should retain current partnership taxation rates to avoid putting the apartment industry at a disadvantage relative to other industries, stifling investment and growth vital to economic recovery. 8
Continue to Tax Carried Interest at Capital Gains Rates
With an eye on generating revenue to offset other tax changes or reduce the deficit, lawmakers have proposed changing the tax treatment of carried interest. The change would have a devastating effect on the real estate industry by taxing carried interest at a higher rate as regular income rather than at capital gains rates. For apartments, the new rules would limit firms’ abilities to develop or rehabilitate apartments, resulting in fewer jobs created and a more acute affordable housing shortage. Apartment Industry Policy: Lawmakers should reject a proposed tax increase on carried interest that would ultimately divert investment dollars from the sector thereby reducing construction and on-site property management jobs and hamper economic recovery.
Retain the Deduction for Business Interest
Efforts to prevent companies from over leveraging are leading to calls to scale back the current deduction for business interest expenses. Unfortunately, reducing the deductibility would greatly increase the cost of debt financing necessary for large-scale apartment projects, curbing development activity. Apartment Industry Policy: The current tax treatment for business interest expense should be preserved. Allowing apartment firms to deduct this expense helps offset capital costs and provides incentive for investment and development in the sector, sparking economic activity that results in job gains.
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Enhance the Low-Income Housing Tax Credit (LIHTC) Program
The push for a simplified tax code is threatening this major financing incentive for low-income housing development. Any downsizing of the program would exacerbate the shortage of affordable rental units, which Harvard University estimates to be at least 3 million units. Apartment Industry Policy: Lawmakers should preserve the LIHTC program as Congress considers comprehensive tax reform. Congress should also make targeted changes to improve the program’s effectiveness, including making the flat 4 percent and 9 percent LIHTC credits permanent and increasing the ability of the program to finance mixedincome housing.
Extend Current Estate Tax Legislation
After allowing the estate tax to lapse in 2010, lawmakers passed a bill to reinstate the levy for 2011 and 2012, which maintained a $5 million exemption, a 35 percent tax rate, and a stepped-up basis regime for asset valuation. However, without further action, the tax will reset in 2013 to a $1 million exemption and a 55 percent tax rate. Apartment Industry Policy: In the interest of promoting certainty and stability in the tax code, the apartment industry urges Congress to swiftly enact permanent estate tax legislation that retains a stepped-up basis regime along with a $5 million exemption and a 35 percent rate.
Promote Fair State and Local Property Tax Policy
State and local governments have explored a wide variety of approaches to scale back property taxes; one is the split roll property tax. Rather than taxing all categories of property at the same rate, a different rate is applied to residential property than to commercial and industrial properties. In areas where multifamily housing is classified as commercial property, such taxation unfairly shifts a higher tax burden onto renters compared to single-family home residents. Apartment Industry Policy: State and local lawmakers should support fair tax codes that evenly distribute the tax burdens across all property types.
Partnerships Under Pressure Proposed changes to the tax treatment of partnerships would disproportionately burden real estate companies, including apartments. Share of U.S. Partnerships Real estate, rental and leasing firms All other industries combined
46.9%
53.1%
Source: “Analysis of the Impact of Increasing Carried Interest Tax Rates on the U.S. Economy—Part II,” Rutledge Capital LLC 9
ENERGY POLICY
INVESTING IN OUR FUTURE THROUGH BETTER BUILDING ENERGY PERFORMANCE
Energy consumption and energy policy are priority issues for the apartment sector. Apartment owners have a significant business interest in reducing the energy costs of operating apartment communities and ensuring that housing remains affordable for residents. As such, many apartment firms have voluntarily established energy efficiency and green building programs throughout their portfolios. However, given today’s challenged economic climate, moving beyond what is currently considered industry best practices will require federal support through tax and other incentive programs. But with the right programs in place, the apartment industry will be positioned to make significant gains in reducing overall energy use while spurring economic development and job formation.
Use Energy Efficiency Incentives to Create New Jobs
Economic recovery and job creation programs targeting energy consumption in the commercial and residential real estate sectors should include multifamily properties, given that energy improvements to apartments affect a large number of households and generate significant energy savings. The Better Building Initiative, a program developed by the Obama Administration, aims to make existing commercial buildings 20% more efficient over the next 10 years by providing tax incentives for rehab efforts and is an attractive model. The retrofit program is expected to create 114,000 jobs, with the tax deduction component of the program driving the creation of roughly 68% of them, according to the Real Estate Roundtable.
Btu Per Household
Apartment Renters Use Less Energy
180
Single-Family Detached Household
160
Multifamily Household
140
Single-Family Detached Household Member
120
Multifamily Household Member
100 80 60 40 20 0
1978
1979
1980
1981
1982 1984
1987
1990
1993
1997 2001
Source: U.S. Energy Information Administration, Residential Energy Consumption Survey 10
2005
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Apartment Industry Policy: Lawmakers should create meaningful financial incentives to encourage the adoption of energy efficiency technologies and practices in new and existing buildings. Favorable tax treatment, including an enhanced depreciation schedule for certain building systems, an expansion of the new-homes tax credit to include high-rise multifamily and an increase in the financial incentive offered for improvements in commercial buildings, would help many property owners with limited resources improve the energy performance of their assets while creating much-needed new jobs.
Set Realistic Building Energy Performance Standards Not Mandates
Recent legislative efforts have focused on controlling building energy performance through aggressive building code mandates, many of which ironically would fail to significantly move the needle on a building’s actual energy performance. These proposals would require all buildings to exceed existing energy code measures by 30 percent to 50 percent. However, in contrast to the American National Standards Institute-approved National Green Building Standard (NGBS), which accommodates a variety of development factors, this one-size-fits-all approach establishes Apartments Are Smart Growth Multifamily housing is inherently more environmentally sustainable, resource efficient and energy efficient than other housing types.
unrealistic energy performance standards that will stifle rehabilitation activity and similarly affect new construction. A codes-based approach to energy conservation puts extreme pressure on apartment firms to invest in very expensive upgrades—costs that have to be passed on to residents, reducing affordability. Apartment Industry Policy: Lawmakers should oppose federal policies that seek to establish arbitrary energy efficiency mandates and preserve the development and adoption of building codes by state and local governments. Moreover, the apartment industry supports a federal government role in stimulating more energy-efficient development through incentives and funding for energy efficiency programs that drive the renovations of older buildings.
Pursue Trusted “Energy Labeling” Programs
There is growing interest among lawmakers to require property owners to disclose their properties’ energy scores or performance ratings. However, unlike the office sector, existing energy performance data currently is insufficient to make such mandates reliable in the apartment industry. Requiring energy labeling on apartments prior to the creation of a fully vetted and robust system, such as a Department of Energy ENERGY STAR labeling program for multifamily properties, could create confusion among prospective residents and stakeholders, discouraging investment in the sector. Apartment Industry Policy: Lawmakers should support voluntary energy efficiency rating programs and reject the implementation of a mandatory performance labeling program that is not based on established building valuation principles.
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BUSINESS MANAGEMENT AND OPERATIONS
REDUCING HOUSING COSTS THROUGH LEGISLATIVE AND REGULATORY REFORM
Because housing lays the foundation for social, economic and community development, federal legislation and regulations in seemingly unrelated areas can also influence the strength and sustainability of the apartment industry. Government action—or inaction—on a diverse range of key issues stands to adversely affect the day-to-day management of apartments by increasing costs, adding liability risk and creating ambiguities with serious health and legal implications. As an overly burdensome regulatory environment increases hard costs, it becomes exponentially more difficult for the multifamily sector to develop affordable housing solutions for the most underserved segment of the market—America’s working class. Support Greater Wireless Broadband Access
Apartment residents increasingly expect newer, faster and more sophisticated telecommunications capabilities in their apartment homes. However, current demand for bandwidth already vastly exceeds the available wireless spectrum, leaving apartment firms struggling to consistently deliver connectivity to their residents. Apartment Industry Policy: Lawmakers and regulators should adopt a legislative and regulatory framework that ensures a robust and comprehensive wireless broadband network to meet the rapidly growing demand.
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Leverage Federal Resources and Establish State Bed Bug Policy Remedies
Despite the growth of the bed bug epidemic across the lodging, office and housing industries, a lack of effective and affordable pesticides is challenging apartment firms’ efforts to prevent and eradicate infestations. In 2010, HUD issued guidelines on preventing and controlling bed bugs in government-backed properties while acknowledging they could limit property owners’ options to prevent infestations. In addition, states are now considering legislation to determine and set parameters for apartment owners and residents’ respective financial responsibilities for exterminations. Apartment Industry Policy: The Environmental Protection Agency (EPA) should leverage its national laboratory system to expedite testing of new and existing bed bug pesticide products and create an online clearinghouse for consumer information on bed bugs. Lawmakers should encourage HUD to rescind its flawed bed bug guidance. State and local proposals on eradication must balance responsibility for preventative action and eradication costs between residents and owners.
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Develop a Clear Immigration Policy
Failure to adopt comprehensive federal immigration reform has led state and local governments to craft their own policy patches, often passing draconian measures. Some measures would even require apartment owners to screen prospective or current residents for their immigration status. Apartment Industry Policy: Congress should reform federal immigration policy for the benefit of the economy and national security. Meaningful reform must include a federally-administered system that accurately and efficiently confirms an individual’s legal status to work in the U.S.; a rational approach to accounting for undocumented individuals who currently reside in the U.S.; a responsive guest worker program that would allow certain employers to hire qualified foreign individuals when other workers are unavailable; an improved border protection system; and a provision designating the federal government as the exclusive authority to create immigration policy. State and local lawmakers should not enact legislation that would put the onus of immigration law enforcement on multifamily property owners, including E-Verify mandates, renter registration programs and anti-harboring provisions.
A Growing Renter Society Multifamily renters represent a significant portion of state populations. State
Rentership Share
District of Columbia
33.7%
New York
23.4%
California
16.4%
Nevada
15.5%
North Dakota
13.9%
Maryland
13.5%
Texas
13.3%
Hawaii
12.8%
Colorado
12.6%
Massachusetts
12.4%
Note: Data reflects renters in multifamily buildings with five or more units. Source: Census 2000 and 2008 American Community Survey. For more information and a complete list of states, please visit www.census.gov
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BUSINESS MANAGEMENT AND OPERATIONS
Promote Employee Privacy and Independence in Union Elections
As private sector union membership has decreased, unions have sought legislation and regulatory remedies to reassert their influence. The most widely known effort is the proposed Employee Free Choice Act (EFCA), also known as the “card check� bill, which aims to limit the use of secret ballots in union elections. Although the bill stalled in the wake of the 2010 midterm elections, unions and pro-labor groups are now seeking to achieve some of the same goals through the regulatory process. Apartment Industry Policy: Lawmakers should oppose regulatory and legislative actions that disproportionately favor unions. Such measures would pose a considerable threat to the welfare of employees and businesses during a sustained period of economic hardship and unemployment.
Proceed with Caution on Privacy Legislation
Several bills aimed at creating national data security standards stand to distract the apartment industry from its primary purpose of providing quality workforce housing. The proposals would not only require firms to establish safeguards against breaches of personally identifiable information (PII), information typically sought during the rental application process, but also potentially hold them liable for data breach. Companies in possession of such information would be required to notify individuals, as well as some federal agencies. Apartment Industry Policy: The apartment industry is committed to protecting residents’ personal and private information. Lawmakers should help property owners and managers avoid being unfairly burdened with unreasonable data security requirements relative to other business communities.
Enact Long-Term Reauthorization of the National Flood Insurance Program
Oppose Barriers to Utility Sub-Metering and Billing
Major reforms are necessary to return the National Flood Insurance Program (NFIP) to fiscal solvency. However, controversy over how to accomplish reform has failed to enact a reauthorization bill. Instead, the program has been operating on several short-term extensions. The most recent extension keeps the program to running through May 31, 2012.
Directly billing residents for electricity usage has been common practice since the 1970s and billing for resident water usage should be treated the same. Based on the principle that individuals will use less of something for which they are held financially responsible, passing usage costs through to residents creates an incentive to conserve water.
Apartment Industry Policy: Lawmakers should support a five-year reauthorization of the NFIP that includes limits for multifamily properties, optional business interruption coverage and improvements to the rate mapping process.
Apartment Industry Policy: State and local policy makers should support the ability of multifamily property owners and managers to bill residents directly for water usage. Further, regardless of whether the billing is done by the property management or by a thirdparty billing service, related fees should be permitted to cover expenses.
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Government action—or inaction—in seemingly unrelated areas can also influence the health of the apartment industry and adversely impact the millions of households who rely on it for their housing. Promote Fairness in Municipal Service Provisions
It is less expensive for local governments to provide waste collection and disposal services on a per household basis to apartment residents because of the dense concentration of units than to provide this service to residents in single-family homes. Despite this fact, and that multifamily properties pay equal or higher tax rates, localities often attempt to exclude apartment communities from waste collection programs as a costcutting measure. Apartment Industry Policy: Local governments should treat multifamily properties equally to single-family homes under waste collection programs. Further, lawmakers should oppose discriminatory rate systems that unfairly target multifamily properties as “heavy commercial users.”
Include Industry Stakeholders in Policy Discussions on Landlord/Tenant Issues
Rental property owners make substantial investments in their properties and provide a valuable housing service to their communities. To incentivize continued investment in rental properties, a proper balance of duties and responsibilities must be maintained between the owner/ manager and residents under state and local landlord/ tenant laws. Moreover, owners must be permitted the tools to compel residents to meet those responsibilities under lease agreements, for example. Apartment Industry Policy: State and local lawmakers should include apartment industry stakeholders in any policy discussions relevant to landlord/tenant laws and should support legislation that equitably balances the interests of property owners and residents.
Support Screening for Criminal History and Reasonable Regulation for Domestic Violence Victims
Some state and local officials are considering making ex-offenders a protected class. Restrictions on the ability of owners and managers to screen applicants based on criminal history interferes with their ability to protect an apartment community’s residents and staff. Additionally, some states are enacting statutes that regulate lease language concerning calls to law enforcement, allowing greater ease to break leases and grant protected class status. Protecting victims of domestic violence is paramount; however, such statutes must be crafted to prevent others from taking advantage of these rules. Apartment Industry Policy: Lawmakers should oppose proposals to prohibit apartment owners and operators from screening prospective tenants based on criminal history. Lawmakers also should support proposals to protect victims of domestic violence that also enable owners to ensure that misuse by other residents cannot occur.
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ENVIRONMENTAL POLICY
BALANCING ENVIRONMENTAL STEWARDSHIP AND ECONOMIC GROWTH
Avoid a Broad-Brush Stormwater Management Program
As the push to reduce the nation’s carbon footprint gains momentum, apartment communities will play a major role in the solution. Compared with other housing types, apartments are significantly more environmentally sustainable and resource efficient because they conserve land, minimize sprawl and preserve green space. While the apartment industry embraces smarter, more responsible community development, a number of myopic regulatory efforts stand to interfere will the industry’s ability to deliver on that promise. These regulations, many of which do little to meaningfully advance environmental objectives, end up restricting apartment developers’ ability to provide affordable workforce housing by significantly lengthening the approval and development process while piling on costs that have to be passed on to the consumer. Moreover, many of these sweeping policies usurp the states and municipalities’ authority over land and water resources in their jurisdictions.
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The U.S. Environmental Protection Agency (EPA) has announced plans to issue new and significantly expanded stormwater management rules for already developed and redeveloped properties under the Clean Water Act (CWA). While EPA currently regulates stormwater through a variety of means, including permits for properties under construction, the new rules extend regulation beyond the construction period and impact ongoing building operations and maintenance. The apartment industry believes that EPA has not only exceeded its statutory authority but failed to follow the proper statutory process to establish regulatory authority over new classes of discharges. Apartment Industry Policy: Lawmakers and regulators should consider alternatives to one-size-fits-all stormwater management rules for apartment properties. Because effective stormwater management is highly site specific, the apartment industry supports proposals that are flexible enough to accommodate diverse geographic and individual site characteristics.
Our Position The apartment industry supports a regulatory framework that protects human health and balances economic feasibility with environmental stewardship.
The Voice of the Apartment Industry
Apartment communities are inherently green. They conserve land, minimize sprawl and help preserve greenspace. They are typically located closer to jobs and transportation, which means residents have fewer cars and make fewer car trips. They also use municipal infrastructure more efficiently which leads to fewer demands for new road construction and water/sewer projects.
Clarify the Scope of Regulated Wetlands
Prevent Over-Regulation on Lead-Based Paint
A series of U.S. Supreme Court decisions that effectively expanded the federal Clean Water Act (CWA) jurisdiction over certain wetlands have created confusion for federal regulators and the development community. Despite a pressing need for clarification, federal agencies, including the EPA and Army Corps of Engineers, have yet to deliver new rules based on the court’s decisions. Because developers who disturb wetlands are required to obtain federal permits for construction under the act, a wider scope under the CWA will result in more lawsuits and permitting delays, hampering the development of needed housing.
Although lead-related health issues have been dramatically reduced, EPA continues to endorse amendments to already stringent federal lead-based paint rules. One such regulation is the Renovation, Repair and Painting Rule (RRP), which would add cost prohibitive measures to renovation projects at pre-1978 properties not certified to be lead free. Of additional concern to the apartment industry is that EPA also plans to expand the RRP rules to include commercial properties and apartment properties with more than 10 units regardless of when they were constructed. Some localities have likewise considered, and in some cases adopted, redundant lead paint regulation in spite of existing federal and state laws. These burdensome regulations impose unnecessary requirements on rental property owners and disproportionately pose a financial burden on the owners and residents of affordable housing. The apartment industry believes the current RRP rule is effective and in no need of significant, complex and costly modifications.
Apartment Industry Policy: Lawmakers should support the protection of water resources under the Clean Water Act; however, they should support state and local policy makers' interest and responsibility in regulating water resources in their jurisdictions by opposing the expansion of the CWA’s federal jurisdiction beyond so-called “navigable” waters to include all U.S. waters.
Apartment Industry Policy: Lawmakers should utilize oversight authority of the EPA Lead Program to prevent an unnecessary blanket policy from crimping future development of needed housing units. State and local governments should avoid cumbersome regulations that are redundant of existing federal requirements. Finally, any discussions of alterations to lead paint rules and procedures should involve multifamily stakeholders.
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DEVELOPMENT AND BUILDING ISSUES
ADVANCING SAFE AND COST-EFFECTIVE APARTMENT DEVELOPMENT WHILE PROTECTING LIFE SAFETY
The nation relies on building codes, standards and best practices to ensure the safety of our built environment. However, as codes evolve for better building performance, it is critical to monitor the cost of implementing new codes. Unnecessarily and prohibitively increasing the construction costs of apartment communities limits the affordability of rental units and aggravates the shortage of affordable housing that already exists in the United States. Enact Reasonable and Proportionate Impact Fees
Since the mid 1980s, local governments have levied impact fees on real estate developers to finance infrastructure necessary to accommodate higher population densities in new development. They are now used to finance a broad range of municipal construction and development projects including schools, libraries and parks, as well as public safety services. Unfortunately, local lawmakers often fail to account for multifamily housing’s efficient use of public facilities. When impact fees are levied on apartments at the same rate as singlefamily developments, increased rents force apartment residents to pay disproportionately higher costs for infrastructure and services than single-family homeowners. Apartment Industry Policy: Impact fees levied for residential development, especially multifamily, should be based on the unit’s type, size and configuration, as well as urbanization factors, such as density and accessibility to mass transit.
Update Zoning and Land-Use Policies
Many local zoning regulations predate World War II and actually require low-density development with singular uses. 18
But demographics are changing; no longer does everyone seek a single-family house in the suburbs. According to the Urban Land Institute, for the first time, there are more single-person households (26.4 percent) than married-couple-with-children households (23.3 percent). The groups growing the fastest, people in their mid-20s and empty nesters in their 50s, are the groups most likely to look for an alternative to low-density, single family housing. Apartment Industry Policy: Local lawmakers should reform local zoning and land-use policies to allow for higher population densities as well as permit mixed use development. Local governments must recognize that many citizens prefer rental housing and allow zoning regulations to reflect this preference.
Support Model Building Codes
The model building codes and standards developed by the International Code Council (ICC), the National Fire Protection Association (NFPA) and the American Society of Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) provide a uniform basis for code enforcement across the country. Because these model codes are voluntary, states and local municipalities can also choose to write their own codes. However, this alternative often creates confusion and contradiction as jurisdictions mix and match various codes and can increase both project costs and the length of the development cycle. Apartment Industry Policy: Lawmakers and regulators should support the adoption of consensus-developed building codes that advance life safety and building performance without unnecessarily increasing the cost of housing
The Voice of the Apartment Industry
construction. We further urge local jurisdictions to adopt the package of ICC codes rather than create a hybrid model cobbled together from codes from different organizations.
Promote Affordable Green Building Standards
The apartment industry supports the voluntary use of practical, proven and cost-effective, energy-efficient and sustainable building principles in multifamily projects. However, a number of green codes and standards, namely ASHRAE 189.1, the International Green Construction Code (IGCC) and the LEED family of codes, were designed primarily to address commercial construction. These programs require the use of products and technologies rarely used and largely unproven in the multifamily sector. When mandated for apartment construction, they can have the unintended consequences of making housing more expensive and less available. Apartment Industry Policy: State and local lawmakers should exercise caution when considering adoption of new energy codes and green building performance criteria to ensure they support housing affordability. For localities seeking to establish green performance benchmarks for apartment buildings, the apartment industry recommends adopting the National Green Building Standard (ICC-700) because it was specifically developed for residential use and is the only standard flexible enough to be incorporated into existing building codes.
Such impediments render retrofit requirements physically and economically infeasible in these buildings. Apartment Industry Policy: Developing and adopting building codes should remain at the discretion of state and local governments without undue federal regulation. State and local officials must make every effort to include input from multifamily owners, developers and other relevant stakeholders when adopting new codes or, when needed, to understand the limits of “one-size-fits-all� standards for applying new codes to existing buildings.
Streamline Inspection Programs Avoid Federal Building Code Standards and State and Local Retrofit Mandates
Recent legislative efforts to reduce building energy usage have sought to federalize building codes by requiring the U.S. Department of Energy to develop federal energy efficiency building standards. These problematic efforts undermine the existing and very successful building code development process and deprive states and localities of the flexibility they need to be responsive to individual community needs. In addition, model building codes, such as those developed by the ICC, ASHRAE and NFPA, are updated to address changes in building technologies—not to be applied retroactively to existing structures. The physical infrastructure in many buildings may not accommodate the installation of new mechanisms to bring recent code requirements to bear.
Rental inspection and registration ordinances are created in response to issues such as blight, public safety, overcrowding and nuisance. Their specifics vary; there may be a per-unit fee, an annual registration requirement, a staggered inspection schedule or a complaint-based system. Often the fees charged for running these programs exceed their actual cost, though most courts require that fees reasonably reflect the actual costs of providing a service. Many inspection ordinances place an unnecessary financial hardship on apartment owners, infringe on personal privacy rights, and single out rental housing while excluding other property types. Apartment Industry Policy: Lawmakers should oppose redundant inspection programs or regimes that do not treat all types of real estate equitably.
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WORKFORCE HOUSING
ADDRESSING THE GROWING SHORTAGE OF SAFE, DECENT HOUSING FOR AMERICA’S WORKERS
The Harvard Joint Center for Housing Studies estimates that there is a nationwide affordable housing shortfall of three million units that will worsen as the number of renter households increases. A number of factors, including regulatory barriers, regulatory compliance costs, construction costs and limited financing, prohibit the private sector from efficiently building, rehabilitating and operating apartments at rents in line with workers’ earnings in many metro areas. Oppose Rent Control
Forbes magazine lists rent control as one of the 10 worst economic ideas of the 20th century, a sentiment echoed by many economists. The benefits are poorly targeted, often going to well-to-do renters instead of lower-income households. Rent control programs reduce the quantity and quality of rental housing at a time when demand is growing. Moreover, housing providers cannot invest in new or existing housing projects if they are unable to collect fair market rents. Apartment Industry Policy: Lawmakers should eliminate rent control programs and instead address housing shortages through incentives for the development of new rental housing.
Streamline the Section 8 Voucher Program
The Section 8 program, which subsidizes rents for lowincome families in private rental housing, has long served as America’s primary rental subsidy program. However, the program has been plagued with inefficiencies and onerous bureaucratic requirements that are increasing the cost to rent to Section 8 voucher holders. 20
These issues discourage private apartment owners from accepting Section 8 vouchers, exacerbating the nation’s affordable housing shortage and causing states and local municipalities to enact regulations to force apartment firms to accept the vouchers. In addition, the program’s erratic funding is expected to worsen in future budget cycles. Apartment Industry Policy: Lawmakers should take action to help the Section 8 program truly meet the nation’s affordable housing needs by removing duplicative regulatory requirements, putting in place a reliable funding formula and reinforcing the voluntary nature of the program. In addition, the apartment industry urges states and localities to respect the voluntary nature of the federal program and not counteract that with source of income mandates.
HUD’s voucher program is the most successful program for providing affordable workforce housing Federal Housing Program
Number of housing units
Section 8 Voucher Program
1,850,669
HOME Investment Partnerships Program
20,834
Community Development Block Grant (CDBG) Rehabilitation Program
18,346
Section 236 Program
225,167
TOTAL Source: HUD
2,115,016
The Voice of the Apartment Industry
Harvard University estimates there to be a shortage of at least three million affordable rental units
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JOINT LEGISLATIVE PROGRAM STAFF National Multi Housing Council Cindy Chetti Senior Vice President, Government Affairs Kimberly Duty Senior Vice President, Public Affairs and Industry Initiatives Jim Arbury Vice President, Student Housing Betsy Feigin Befus Vice President, Employment Policy and Counsel Matthew Berger Vice President, Tax Lisa Blackwell Vice President, Housing Policy David Cardwell Vice President, Capital Markets and Technology Jeanne McGlynn Delgado Vice President, Business and Risk Management Policy Eileen Lee, Ph.D. Vice President, Energy and Environmental Policy Ronald Nickson Vice President, Building Codes Mark Obrinsky, Ph.D Vice President, Research and Chief Economist Paula Cino Director, Energy and Environmental Policy Jim Lapides Director, Public Relations Sarah Yaussi Director, Industry Information Caitlin Sugrue Research Analyst Amy Jo Beranek Legislative Assistant National Apartment Association Greg Brown Vice President, Government Affairs
4300 Wilson Blvd. Suite 400 Arlington, VA 22203 703/518-6141 Fax: 703/248/9440 www.naahq.org/governmentaffairs government_affairs@naahq.org
Scot Haislip Senior Director, Government Affairs Carole Roper Manager, Public Affairs Alison Berry Manager, State and Local Government Affairs Lauren Kelly Paralegal Nicole Upano Research Analyst
1850 M St. NW Suite 540 Washington, DC 20036 202/974-2300 Fax: 202/775-0112 www.nmhc.org info@nmhc.org
Have you met your local or state apartment association? To contact yours, go to http://www.naahq.org/about/join/Pages/AffiliateDirectory.aspx 24