On July 11th the 21st Century Road to Housing Act (the “Act”) became federal law after President Trump neither signed nor vetoed the Act. Unusual in light of recent times, the Act passed with significant bipartisan support in both the U.S. Senate and House of Representatives. Trumpeted by legislators of both political parties as a means to increase U.S. housing supply and improve affordability, the Act includes dozens of provisions that, among other things; restricts the volume of single-family home ownership by institutional investors, directs the publication of guidelines and incentivizes best practice frameworks for state and municipal zoning and land-use ordinances and creates several supply-side incentives and reductions in federal regulatory burdens as mechanisms to spur housing stock and in turn affordability.
While commentators have mixed opinions as to the efficacy of the various provisions of the ACT, there is no doubt that some changes in the commercial real estate industry and specifically the “build-to-rent” sector will occur. Limited by word count to fit within the parameters of this column, the below are a few key takeaways:
1) Institutional investor ban on buying single-family homes.
As mentioned above, the Act restricts “Institutional Investors” (defined as entities with investment control of 350 or more single-family units) from purchasing single-family homes, subject to enumerated exceptions. A “Single-family home” includes duplexes where each unit is intended for residential occupancy by a single household.
2) Build-to-Rent and new construction exception but 7-year disposal requirement to individual homeowners threatens the BTR sector.
Build-to-rent single-family homes community purchases by institutional investors are permitted under the Act as “excepted purchases,” but are subject to a 7-year disposal requirement to individual home buyers, which sale obligation in turn is encumbered by a right of first refusal, and a 30-day “first look” period for renters.
3) No preemption of local authority but incentives to adopt proposed framework.
The Act expressly does not preempt local land-use and zoning authority but does direct HUD to publish zoning and land-use guidelines and best-practices frameworks for state and local authorities.
4) Adaptive Reuse and Commercial-to-Residential Conversion.
The program prioritizes economically distressed areas and Opportunity Zones and is funded through excess HOME Investment Partnerships Program grant allocations. property owners holding underused commercial space, this signals that adaptive reuse. One of the Act's most consequential provisions for commercial property owners establishes a pilot grant program to help local governments convert vacant commercial or industrial buildings into affordable housing.
5) Expanded Definition of Manufactured Housing.
The Act remove the chassis requirement from the definition of “manufactured home”. Redefining “manufactured home” to include those manufactured without a chassis eliminates unnecessary cost, removes the single-story design limit on manufactured homes, increases their potential use (such as over an existing basement) and by prohibiting local governments from distinguishing manufactured home on the basis of whether or not it has a chassis, potentially widens the use of manufactured housing under existing zoning codes.
6) Reduced Federal Regulatory Burdens and Increased Financial Incentives.
The Act streamlines environmental review designation for HUD-assisted projects by allowing HUD to defer to state and local environmental reviews where they largely satisfy federal requirements. The Act expands categorical exclusions for infill projects and smaller-scale residential construction, including conversions of existing office buildings into residential development. Importantly, no streamlining is available through the bill for larger projects, which potentially would have a bigger impact on housing availability. The Act also several provisions designed to incentivize local housing production, though these are noted by commentators to be modest in scale. The Act adjusting grants upwards based on whether a grantee is above or below the median rate of housing improvement. The Act also adds new affordable housing construction as an eligible CDBG activity, expanding current eligibility beyond repairs, rehabilitation, and reconstruction. Lastly, among other provisions not mentioned, the Act creates a fund offering flexible funding for communities that have demonstrably increased their local housing supply. years 2027 through 2031 – a relatively limited budget given the scale of the housing supply shortfall.
While the ramifications on the commercial real estate market remain to be seen, the Act represents one of the most significant federal interventions into the housing market in years, and its implications for commercial real estate leasing, development and investment are substantial