The 21st Century ROAD to Housing Act, which passed with a rare showing of strong bipartisan support, represents the most sweeping set of federal housing reforms in decades.
Colorado’s struggles to improve housing affordability inform many of the federal housing reforms, which should leave the state in a better spot to “connect the dots” and implement the changes coming.
“Colorado has always been on the cutting edge. We are so far ahead of other states,” said U.S. Sen. John Hickenlooper, who made sure some state innovations were included in the 60 provisions in the ROAD Act, short for Renewing Opportunity in the American Dream.
For example, Colorado’s approach of providing local governments with incentives to allow more ADUs — accessory dwelling units, such as backyard cottages or garage apartments — and transit-oriented development is being replicated in the new law, Hickenlooper said.
The state has been a leader in providing financial and regulatory support for modular and other innovative construction methods. That local effort, spearheaded by Gov. Jared Polis, is about to embark on a national tour.
The ROAD Act will make it easier for state housing finance agencies, like the Colorado Housing and Finance Authority (CHFA), to pair federal Low-Income Housing Tax Credits (LIHTC) with state-backed debt funds.
In 2022, Colorado voters agreed to set aside 0.1% of state income tax revenues for a State Affordable Fund. CHFA has gained national recognition for how it has leveraged the Proposition 123 funds for uses like land banking, funding construction innovation and incentivizing municipal zoning reforms — versions of which are in the federal legislation.
CHFA has pushed to raise national bank lending limits on affordable projects, which have been set at 15%. The ROAD Act raises those “Public Welfare Investment” caps to 20%, unlocking billions of dollars in additional private bank tax equity.
“A lot of the efforts that Colorado and similar states have made are being acknowledged through this bill and are being supported at the federal level,” said Tyler Jaeckel, director of the Colorado Division of Housing.
Jaeckel said the legislation signals a clear federal recognition of state-level innovation.
The ROAD Act also provides the regulatory relief that the real estate industry argues is critical. The National Association of Home Builders estimates that government regulations, from local to federal, .
The ROAD Act tries to soften costs by providing exemptions under the National Environmental Policy Act for infill housing, small developments with 15 or fewer units, and property acquisitions dedicated to affordable housing.
Structural reform vs. direct subsidies
Rather than distributing direct safety-net assistance like housing vouchers, the ROAD Act favors a mix of development incentives and regulatory reforms to expand housing supply over time.
That clear-the-path approach, however, leaves some housing advocates concerned that immediate needs aren’t being met.
“We only serve 1 out of 4 eligible Americans who desperately require a housing voucher, many of whom are our elders,” said Peter LiFari, the executive director of Maiker Housing Partners, the housing authority in Adams County. “They need our support as a nation. This bill could have made that happen.”
LiFari argued the bill arrived 20 years too late and noted its proposed financial investments paled in comparison to annual defense spending.
Likening the package to “vanilla ice cream,” LiFari joins those offering a polite golf gap: Pleased it passed, but wishing it had dared to do more.
No quick fixes offered
Where to place the ROAD to Housing Act in a historic context remains up for debate. Experts agree it won’t offer immediate relief like emergency pandemic programs, although they hope it establishes a lasting foundation.
Is it the most significant housing reform since the Cranston-Gonzalez National Affordable Housing Act of 1990 or the Fair Housing Act of 1968?
Kinsey Hasstedt, Colorado director of state and local policy for Enterprise Community Partners, views it as the biggest event in housing policy since the National Housing Act of 1934, which created the FHA and the modern mortgage system.
“I think itap monumental and has the potential to do a lot of good,” Hasstedt said. “I also think that, realistically, nothing is going to happen fast. There are a lot of provisions that need appropriations, and there are provisions that require future rulemaking.”
Like Sen. Hickenlooper, U.S. Rep. Brittany Pettersen, a Democrat representing central Colorado’s 7th Congressional District, saw provisions she had originally authored folded into the final package.
She called its passage a “glimmer of hope” that Congress can still enact sweeping legislation.
“Like all urgent issues, this is going to be an all-hands-on-deck approach, or it needs to be, for a long period of time,” she said. “This does not solve everything.”
She highlights the bill’s $200 million competitive grant program for local governments willing to reform land-use rules to boost housing density and supply.
That’s a drop in the bucket compared to the $2 trillion in capital required to close what Zillow estimates is a deficit of 4.5 million U.S. homes.
“We really do need massive federal investment to bring down the costs for regular people, to bring back the opportunity of that foundational piece of the American dream,” she said.
New programs will need to win appropriations. But updating existing programs should deliver more funding flexibility in the near-term for affordable housing developments, Hasstedt said.
“I think itap a huge opportunity for housing and affordability, and itap going to take some time for all of it to shake out,” she said.
Caps on large investors
The one provision that has drawn more attention than any other is Title X, which caps single-family home ownership by large institutional investors at 350 homes.
Owners above that cap are grandfathered in, but they are prohibited from making additional purchases on the open market.
Institutional investors control between 1% and 2% of the nationwide single-family housing stock, and close to 4% of the rental housing stock, .
Small mom-and-pop landlords with under 10 homes control about 85% of the rental market.
Hasstedt served on a task force last year that estimated was held by large corporations.
Several barriers complicated the calculation, however, and she hopes that the ROAD Act’s transparency rules will make corporate tracking easier in the future.
Data shows that corporate buyers have heavily targeted homes at lower price points, crowding out first-time buyers.
Specific neighborhoods in Aurora, Commerce City and eastern Colorado Springs have above-average concentrations of institutional ownership, which can make it harder for people to buy starter homes and leave them subject to upward rent pressures.
Higher interest rates and narrower operating margins have already from their 2021 peak and institutional sales are increasing this summer after the passage of the new law.
Institutional capital is pivoting to a “build-to-rent” or BTR strategy — constructing dedicated rental communities rather than buying up existing housing stock.
Earlier versions of the ROAD Act would have forced BTR owners to sell their homes after seven years while offering tenants a right of first refusal to buy.
The real estate industry successfully lobbied to remove those restrictions, arguing forced sales would stifle new construction.
“Some of the most disruptive provisions of the earlier version of the bill that were extremely concerning did get modified,” said David Sinkley, president of Boulder Creek Neighborhoods, a Lafayette-based homebuilder.
Homebuilders rely on the BTR market to absorb excess inventory when the for-sale market slows, he said.
Without that off-ramp, builders would be forced to slash prices, threatening the equity held by recent buyers or to idle construction crews.
Between 2006 and 2012, Colorado lost 80% of its active homebuilders. Construction capacity wasn’t there when housing demand rebounded, contributing to an affordability crisis.
Sinkley also wishes the ROAD Act had gone further, especially when it came to addressing construction defects litigation, which he said continues to block new condo development in Colorado.
Nor does the legislation directly try to lower mortgage rates, which he said remain the primary obstacle for prospective buyers.
“I caution consumers not to think this will change prices and mortgage rates immediately,” said Ryan Bennett, home loan regional director in Denver with BOK Financial Corp. “It will be a slow process.”
