The Senate housing bill’s road to socialism

In the last week of February, I expressed hope that members of Congress would “embrace free-market proposals to advance opportunities in the housing sector” and reject “socialist limits on property ownership.” My hope was that the deregulatory measures of the recently passed House bill, the Housing for the 21st Century Act – which sailed through the House overwhelmingly with a 390-9 vote – would be adopted by the Senate and sent to the president.

Alas, a few days later, my hopes were dashed when Senate Majority Leader John Thune (R-SD) put a new housing bill on the Senate floor – which is being debated today and likely being voted on this week – that gutted most of the deregulatory measures and put in limits on acquiring property that a month ago would have made socialists blush. A bill that once contained some modest bipartisan deregulatory measures has descended into one that prominent experts believe will now reduce supply and make housing more expensive. Here is a survey of the damage in the 21st Century ROAD to Housing Actnow being debated in the Senate.

The bill guts an entire section of House bill providing regulatory relief for small banks and credit unions

As I had previously written, the House bill – recognizing the importance of community banks and credit unions in moving housing supply and making housing more accessible to lower and middle-income families – contained a whole section devoted to clearing away regulatory red tape that hits these financial institutions and drives up costs for borrowers. One of the most important measures in that section was the liberalization of rules governing formation of new, or de novo, banks and credit unions. As I wrote:

Lifting regulatory barriers to de novo banks, as the bill would do, would inject much-needed competition into the banking system. This competition – especially if paired with repeal or relief from Dodd-Frank and other red tape crushing community banks – would lead to more banks offering more products tailored to the specific needs of borrowers and savers in their area. These new options would make it easier overall for consumers to build savings and obtain home loans.

Yet even though the de novo and other deregulatory measures were approved in the final bill by nearly every member of the House, this entire section of regulatory relief for banks and credit unions was mysteriously dropped when Thune brought his new bill to the Senate floor.

The bill puts socialist limits on both buying and building homes

My colleague Steve Swedberg and I have both criticized President Trump’s proposal to limit the number of single-family homes investors can buy. We have pointed out that it is a solution in search of a problem, as in Steve’s words, “institutional investors own only about 1 percent of single-family rental homes, and an even smaller fraction of the overall housing stock.” We have noted – as does Sen. Rand Paul (R-KY) in an X post today that kindly cites me – that investors have created new options for folks who can’t or don’t want to purchase a home, but wish to live in a home that is larger than an apartment. As Sen. Paul eloquently puts it:

Regardless of whether people are financially capable of buying a home, some people would rather rent and leave the cost of property maintenance to a landlord. If the ROAD to Housing Act is enacted, renters will have fewer options and, as a result, either be forced to live in a lower quality apartment or pay increased monthly rates.

Yet the 21st Century ROAD to Housing Act goes much further than the president and proposes something much worse. It actually penalizes the building, ownership, and purchasing of homes. The bill essentially limits any LLC or corporation to owning no more than 350 homes, with some complex exemptions. The Wall Street Journal reports that the bill would require many “single-family home investors to sell their newly built rental properties to individuals within seven years of completing them.” The article also spells out the negative consequences for the homebuilding industry and for both renters and buyers.

Investors would be reluctant to fund new rentals that they would own for a few years before having to sell them off, investors and builders said. The provision would also likely lead to forced evictions of the tenants in those rental homes if they cannot afford to buy the property themselves, builders said. 

Fatal conceits and the ROAD to hell

This provision shares the same “fatal conceit,” to use the phrasing of legendary economist F.A. Hayek, of the programs of socialist and Peronist nations that expropriated land and banned or strictly limited private ownership. As another great economist, Henry Hazlitt, wrote of the programs (on page 172 of Man vs. the Welfare State), “The so-called ‘land reform’ that our government officials often demanded meant destroying existing largescale agricultural enterprises, dividing land into plots too small for efficient or economic cultivation, turning them over to untried managers, undermining the principles of private property, and opening a Pandora’s box of still more radical demands.”

The 21st Century ROAD to Housing Act is a road to hell of failed ideas that strike at the heart of the system of property rights that has sustained America for 250 years.

CEI Research Associate Hayden Stolzenberg contributed to this post.