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Tenant protections must avoid many unintended consequences

This week, NHC submitted comments on the Federal Housing Finance Agency’s (FHFA) Request for Input (RFI) on tenant protections at multifamily properties with mortgages backed by Fannie Mae and Freddie Mac (the Enterprises). The policy is one of the most controversial currently being considered in Washington, DC. Arguments on the side of tenants focus on huge increases in rents in many markets over the past three years. The apartment industry argues the housing supply shortage would be worsened by disincentives to invest capital in new production. Neither premise is wrong. We need to do everything we can to make rental housing more affordable and help tenants avoid eviction. But we can easily go too far, and good intentions can easily result in worse outcomes.

How serious is this problem? Different cities vary widely, but the worst is Phoenix, Arizona, where the cost to rent a 1-bedroom apartment increased 34% in one year! Not surprisingly, Phoenix also leads the nation’s growth in homelessness. One reason for this is that Phoenix is one of the hottest job markets in the country. That should be a good thing, but not when housing production fails to keep pace with job creation. We simply are not building nearly enough affordable housing, and the overwhelming cause of that is a lack of political will at the Federal and local level.

As rents have soared, more people have been squeezed out of an affordable apartment and onto the street. Of course, it’s not just Phoenix. Dozens of cities have seen double digit rent increases in just one year, including Tampa, Fla (24%), Seattle, Wash. (21%) and Boise, Idaho (18%). You can see how these cities and hundreds of others are doing in NHC’s Paycheck to Paycheck Database. You can also compare how costs impact over 100 job occupations in each of them, for every kind of apartment from a studio to a 4-bedroom unit.

NHC has consulted broadly with our diverse membership, from for-profit developers to tenant rights advocates. Nonprofit housing developers were particularly helpful, balancing strong views on both sides. We need to identify reasonable tenant protections, but not at the expense of housing production. While it’s true the benefits of government sponsorship require a responsibility to serve those who struggle the most with housing affordability, discouraging use of optional channels risks pushing companies into using other, much less regulated options.

When all of the facts are considered, I believe we must focus on increasing housing production, while embracing common sense protections of basic fairness for tenants. If an applicant is denied, they should know why. If a lease is not going to be extended, a renter should be told in time to find a new place. But we also need to be sure we are protecting all the tenants in the building. Bad behavior, including nonpayment of rent that will ultimately lead to higher rents for everyone in the building, cannot be tolerated. Demonizing responsible landlords while making some tenants pay for the misdeeds of others is not fair.

Housing affordability objectives must be met primarily through increasing housing supply. NHC is supportive of enacting policies that offer additional education and resources for renters. But these should be appropriately funded by the government, through direct appropriations or tax incentives. Otherwise, they risk reducing overall supply and creating additional confusion in an already uncertain and difficult market. At their worst, they trap tenants further into debt and only delay the inevitability of eviction.

In our letter, NHC’s recommendations include:

  • Create incentives for rent increases that are above the rate of inflation to require longer notice periods from housing providers. A standard practice would require minimum 30-day notice to tenants for any rent increase, and a minimum of 120-day notice of any increase in excess of the rate of inflation, allowing tenants to terminate the lease with no penalty or fees in such circumstances.
  • Establish a requirement for just cause eviction standards similar to the good cause requirements for the Low-Income Housing Tax Credit program and HOME Investment Partnerships program.
  • Provide sample documents for tenants that offer guidance on common practices and terms within the rental industry and standard documents for notifying applicants of a rejection.
  • Develop a new resource for residents that provides a database of existing tenant protections across jurisdictions. This resource would offer clear, concise information in a single place that better informs residents of their rights within their specific communities.
  • Support research of eviction diversion, landlord-tenant mediation, and right to counsel programs to identify best practices and incorporate into their underwriting standards as preferred practices that in turn receive incentives for voluntary program participation or enactment.

Another important issue that we raised, as did the National Low Income Housing Coalition and the National Council of State Housing Agencies involves a loophole in the federal LIHTC statute that permits owners to get out of their affordability requirements by submitting a “Qualified Contract” (QC) in the 15th year of affordability. If the state housing finance agency (HFA) is unable to find a buyer for the property at the QC price who will maintain the property as affordable for the extended use period, then the owner is permitted to phase out affordability restrictions over a period three years. While some states have taken measures to close this loophole, others have not, and some LIHTC owners are making strategic use of this provision to prematurely exit affordability requirements. It is estimated that over 100,000 units have been lost to the QC loophole since 1990. Congress should close this loophole immediately.

Among the many comment letters sent by other stakeholders, 17 US Senators embraced many of the goals espoused by tenant advocates. These include:

  • Limits against “egregious rent hikes in properties with financing backed by Fannie Mae and Freddie Mac and full, upfront transparency regarding rents and fees that may be charged.”
  • “Good cause for evictions and lease non-renewals” and adopt a strong definition of “good cause” – such as serious and repeated lease violations provable in a court of law – to ensure that tenants are safeguarded against unfair, discriminatory, and retaliatory evictions.
  • “Comprehensive asset management procedures to ensure housing safety and quality,” and
  • Enforceable protections against discrimination, including prior eviction or credit score.
  • Timely provision of any tenant screening report used by an owner or manager to an applicant for housing upon request.

I’m particularly concerned with how we define “good cause.” If you live on the same floor as a tenant who repeatedly violates the same rules that you follow, how long should they be allowed to fight in court to stay while your rent goes up to pay for the legal expenses and lost rent? Who in this scenario is being treated unfairly?

I am also concerned about considering eviction or credit score as tantamount to discrimination. Discrimination against racial and ethnic groups, gender, or sexual orientation, are serious violations of the law. They should not be diminished by lumping them together with a history of nonpayment of rents or other obligations. Credits scores need to be made fairer, but they remain highly predictive, as is a past history of eviction. We need to consider these issues very carefully, and be sure we are supporting fairness, not making easy promises that are rife with unintended or ill-considered consequences.

The National Multifamily Housing Council (NMHC) which represents large building owners, managers, developers and investors expressed deep concern that the RFI overlooks the most pressing issue impacting the nation’s affordable housing market: the lack of adequate supply at all price points and the costs and barriers to the development and preservation of the existing affordable stock. It noted state and local laws and regulations already address the issues under consideration in the RFI, warning that additional FHFA mandates would create unnecessary and confusing duplication, disincentivize housing providers and developers from participating in the affordable housing market and create operational distinctions between Enterprise-backed and non-Enterprise-backed properties in the same jurisdiction. NMHC advocated that FHFA:

  • Focus on liquidity, not mandates.
  • Recognize the damaging impacts of rent control to the long-term sustainability of the multifamily housing market and to low-income residents in underserved communities and avoid any such requirements in Enterprise-backed products.
  • Consider initiatives like the Choice in Affordable Housing Act as policymakers and regulators consider additional ways for the Enterprises to increase voluntary acceptance of housing choice. The bipartisan legislation authorizes and directs additional resources to attract and retain property owners in the HCV program.
  • Focus on efforts that address the root causes of eviction, as it is often a symptom of financial distress or other factors impacting the household.
  • Consider additional means in which Fannie Mae’s Sponsor-Initiated Affordability and Freddie Mac’s Tenant Advancement Commitment programs can be made more user-friendly and effective for all stakeholders

Stewards of Affordable Housing for the Future urged that FHFA and the Enterprises:

  • Develop a user-friendly database of Enterprise-backed multifamily housing that renters could use as they search for a home, providing information on the location, relevant eligibility, and affordability restrictions of available, Enterprise-backed multifamily housing units.
  • Take lessons learned from Fannie Mae’s Expanded Housing Choice pilot and explore ways to expand source of income (SOI) protections to all Enterprise loans for affordable housing properties receiving financing incentives and to encourage the adoption of source of income protections in the broader universe of Enterprise-backed properties.
  • Consider ways to encourage multifamily property owners to conduct written and verbal walk-throughs of all lease requirements, and encourage the use of a worksheet, one-pager, or summary document that residents can use to remember key terms of the lease through the development of a sample optional form.
  • Require just-cause for evictions at multifamily properties with Enterprise-backed loans.

The National Association of Home Builders strongly advocated that the best way FHFA and the Enterprises can help tenants and prospective renters is to increase the supply of apartments that are affordable to households at all income levels and in all parts of the nation. The most straightforward way for the FHFA and Enterprises to increase the supply of housing is by continuing to do what they’ve done extremely well: provide liquidity in the secondary mortgage market through all economic cycles and all geographic locations. They also recommended that:

  • FHFA should facilitate opportunities for the Enterprises to make more equity investments in Low Income Housing Tax Credit (LIHTC) properties.
  • Increase funding and program reforms to incent landlords’ participation, without mandating property owners’ participation through source of income protection requirements, that are required conditions for all Enterprise multifamily mortgage loan products.
  • Stay out of areas of accessibility and design and construction requirements of the FHA and ADA, as these areas are already well regulated by the Department of Housing and Urban Development and Department of Justice.
  • Educate prospective renters about the importance of having good credit, how to build a strong credit history and how to dispute inaccuracies on their credit reports.

We look forward to working with our members and FHFA as it reviews comments and develops any new approaches to rental housing affordability. In the meantime, we will continue to fight hard for enactment of the bipartisan Affordable Housing Credit Improvement Act, which would expand LIHTC and increase the stock of affordable housing by nearly two million units over the next decade. The law of unintended consequences and the law of supply and demand have one thing in common – they are never repealed.

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