Congress could act this year to help developers build housing near train stations and bus stops, in a bid to address what members of both parties see as an affordability crisis.
Legislation to add apartments near transit would be the second major housing bill passed this year on a bipartisan basis, following the enactment in July of the landmark 21st Century Road to Housing Act, which rolls back federal housing regulations and encourages state and local governments to ease up on zoning and land-use rules that crimp supply.
Two factors have led to this legislative juncture.
One is that members of both parties see it as logical to build housing units near buses and trains that can take residents to nearby jobs.
Another is that building near public transportation is a way to get around opposition from incumbent residents who don’t want new construction nearby – often referred to as “NIMBYs,” standing for “Not In My Back Yard.”
The model of transit-oriented development, or TOD as it is known, has seen rapid adoption across the country. Most prominently, California this year implemented a law that overrode local zoning laws to allow greater density along transit lines. Washington, Massachusetts, and other states have enacted similar measures.
Now Congress may pursue a similar approach.
The legislation
One of the bills in question is meant to enable the Department of Transportation to provide cheap financing for transit-oriented development. Its prospects are favorable because most of it was added to the House version of a larger transportation authorization bill that leaders hope to pass this year.
The bill would reform existing authorities, created by a 2015 transportation bill, that allow DOT’s Build America Bureau, which provides financing for transportation infrastructures, to also provide subsidized financing for housing and mixed-use developments near transit.
Housing and transit were long linked in U.S. development. Many of the oldest suburbs, for example, were financed by streetcar systems that made a profit by developing land along their service lines.
Through the DOT, the federal government is trying, in effect, to reverse that development pattern, by encouraging developers to take advantage of the trains and buses subsidized by Uncle Sam.
Yet the program has proved mostly unworkable. No projects have been built, and only one loan has been granted, for a library in Mount Vernon, Washington.
The new reform legislation, authored by Sens. John Curtis (R-UT) and (D-DE), would overhaul the DOT lending programs to make them accessible. The changes would lead to the development of 100,000 new rental units, according to the National Multifamily Housing Council.
A spokesman for Curtis said that the measure, the Build Housing, Unlock Benefits and Services (HUBS) Act, is meant to cut the red tape that has prevented developers from taking advantage of the DOT lending authorities. Specifically, it would allow the agency to delegate loan origination, underwriting, and servicing to private entities. It would also exclude some projects from environmental reviews that are required for federal government actions.
Basically, the intent is to take a program that is set up to provide financing for massive infrastructure and simplify it to make it usable for housing developers.
Traditionally, financing from the bureau “is for public horizontal transportation infrastructure, not vertical private development, so the entire project development and underwriting bureaucracy of USDOT has had to get used to that mindset shift for TOD projects,” Doug Landry of Langan, who provides advisory services to clients seeking DOT finance, wrote to the Washington Examiner in an email.
Additionally, the law would sweeten the terms of financing for projects that would house renters in the middle of the income distribution. It would allow developers to take on larger loans and at lower rates.
That provision is key because, as it currently stands, private lenders offer better financing than is available through the federal program, said James Patchett, the CEO of Gilbane Development.
Patchett said that today’s high-interest-rate environment, with yields on 10-year Treasury securities around 5% in recent months, has made it difficult for many projects to move forward.
“Having a more reliable source of funding, also at a reduced rate, could really be a game-changer,” he said. “It would also enable us to look for specific types of projects that would fit this criteria that might otherwise not – we might not be spending time on.”
The housing crisis
The U.S. faces a massive housing shortage. Some estimates put it at near five million homes, others place it closer to 20 million.
Whatever the deficit, it is clear that the lack of supply has pushed up prices enough to bother voters and force Congress to act.
Overall, shelter prices are up more than a third since the pandemic, according to the consumer price index, and nearly three-quarters since the Great Recession following the financial crisis in 2008. Thanks to higher mortgage rates, the monthly payment on the typical home has doubled since the pandemic.
The lack of housing has led some young people to delay marriage. It has made it harder for workers to move to cities with opportunities. And, in some extreme cases, it’s pushed people into homelessness.
The 21st Century Road to Housing Act was meant to be a first step toward bringing down prices by increasing the supply. In theory, the law could lead to more housing production all over the country.
The Build HUBS Act, said Katharine Burgess, the vice president of programs and operations at Smart Growth America, is the next legislative frontier, better aligning housing, land use, and transit.
Where the idea came from
Although Utah is a state of vast, wide-open spaces and rugged terrain, the vast majority of its population is in the Wasatch Front, a dense area below the mountains along Route I-15 between Ogden and Provo.
The need to accommodate housing in this built-up area, and comments from local transit authorities about the difficulties building along transportation routes, led Curtis to sponsor the Build HUBS Act, his office said.
In contrast, much of the recent U.S. growth has taken place in greenfield locations outside of cities. For example, the Dallas-Fort Worth metroplex has led the nation in adding housing by sprawling outward with new single-family home tracts.
But in built-up places like the Salt Lake City metro area, it is difficult to get permitting and financing for projects that would densify neighborhoods. For example, parts of the land near the American Fork commuter rail station in the Wasatch Front are zoned for single-family houses only.
A lot of the support for the legislation came from the congressional Suburban Caucus, said Matt Kingsella, the CEO of Up for Growth, a group that favors grater housing production.
Kingsella said that the legislation is less about building housing in dense urban areas like New York City or San Francisco, and more about building up lower-tier cities and regions.
“What we’re talking about here isn’t just financing new housing development, and certainly that’s incredibly important, but it’s about placemaking and it’s about economic development and breathing new life into regions that have let’s say lagged in competition with downtown cores,” he said.
Transit-oriented development, he said, has the potential to bring a mix of uses, such as commercial, retail, and recreational, within walking distances of housing in places that today are characterized by car washes and big box stores that can only be reached by car.
That pattern of development is more of a possibility in the states and cities, like California or Minneapolis, that have reformed their land-use laws in recent years to allow for medium density.
Those reforms would likely go further with a second bill in included in the transportation bill that would incentivize localities to ease land-use restrictions near transit hubs by giving them more of the pot of transportation funding.
With the land-use conditions more favorable, proponents see a need to provide financing.
“Many cities as well as states have really improved the standard zoning practices and really increased opportunities for transit-oriented development,” said Katharine Burgess, the vice president of programs and operations at Smart Growth America. “The next step after projects are seeking a smooth environment for zoning is ensuring that the appropriate financing is available. So Build HUBS could really fill a critical gap here.”
For decades, the federal government has provided financing for development, including through HUD, the Federal Housing Administration, the government-sponsored enterprises Fannie Mae and Freddie Mac, and other agencies. Those loans, though, are easier to make work for single-use purposes and historically have not worked as well for infill.
The link between housing and transportation
The Build HUBS Act would define TOD as any residential, commercial, public, or mixed use project located within a half-mile walking distance of a transit hub.
That would mean places like the Wasatch Front, the San Francisco Bay Area, Southern California, Chicagoland, the Dallas-Fort Worth Metroplex, much of Florida, the entire Acela Corridor, and various other parts of the country served by trains.
Advocates say that the federal government has a vested interest in seeing that the roughly $130 billion it spends a year on transportation, including more than $30 billion on transit and rail, get the most bang for the buck.
“This isn’t about simply whether we can finance more housing near transit, it’s about whether we’re getting the full public benefit from the transportation infrastructure that taxpayers have already paid for,” Kingsella said.
A number of the bill’s proponents noted that the benefits of housing near buses and trains are multiplicative, including for nearby employers who can benefit from having workers nearby, as well as retailers who might see their customer base expand.
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New York and other large, dense cities that became metropolises before the existing systems of zoning and housing finance don’t have trouble building housing near transit. But the bill’s backers think that smaller and newer urban and suburban areas will benefit.
“Once we enter an economic environment with better fundamentals for real estate development, and one or two TOD loans are finally moved through process, I think you’ll see more interest in the use of these programs from the medium to smaller developers in the suburban and secondary cities where transit is poised to be a real asset to leverage housing and economic development and all the benefits that brings to communities across America,” Landry said.
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[ H/T Washington Examiner ]
