The ROAD housing bill’s biggest breakthrough isn’t the investor ban. It’s supply.

Congress is finally treating housing affordability as a production problem rather than simply another demand problem. Much of the attention surrounding the 21st Century ROAD to Housing Act has focused on its restriction against additional single-family home purchases by large institutional investors.

That provision makes for a compelling political headline: Homes should be owned by families, not corporations.

But it is not the most important part of the bill.

The legislation’s bigger breakthrough is that Congress is finally acknowledging the root of America’s housing affordability problem: We do not have enough homes where people need them, in the types and price ranges they can afford.

Congress passed the package with overwhelming bipartisan support. At the time of writing, however, it has not been signed into law after President Trump canceled a scheduled June 24 signing. Whatever happens next politically, the policy direction deserves the housing industry’s attention.

For too long, Washington has approached affordability primarily as a demand-side problem.

Give buyers a larger tax credit. Create another down payment assistance program. Expand subsidized financing. Find a way to help consumers borrow more money.

Those policies may help selected buyers, but they do not create additional housing.

When more purchasing power is introduced into a market with chronically limited inventory, buyers are simply given more money with which to compete against one another. That can increase demand without addressing the underlying shortage.

The ROAD to Housing Act begins with a better premise: Affordability cannot be meaningfully improved without increasing supply.

The unglamorous reforms may matter most

The bill includes dozens of housing and banking provisions, but several of its least sensational ideas may ultimately produce the greatest results.

It directs HUD to develop best-practice frameworks for zoning and land-use policies. It supports faster environmental reviews for smaller and infill projects. It encourages communities to create preapproved housing designs. It establishes a pathway for converting vacant and abandoned buildings into attainable housing.

None of these ideas will generate the attention attracted by restrictions on institutional acquisitions. Yet these are precisely the changes that could reduce the time, uncertainty and expense involved in creating homes.

Consider preapproved housing plans.

A local government could approve a catalog of designs for accessory dwelling units, duplexes, townhomes, cottage courts and other smaller-scale housing. A builder using one of those plans would not need to begin every architectural and regulatory review from scratch.

That can be particularly valuable to smaller local builders.

Large developers can absorb years of entitlement work, legal expenses and redesigns. Smaller builders often cannot. Reducing those preliminary costs could allow more local companies to build on individual lots and pursue infill projects that are too small for national builders.

It is not a dramatic reform. It is a practical one.

The same is true of requiring certain communities receiving federal funding to maintain searchable databases of undeveloped publicly owned land. Housing cannot be built on land that builders do not know is available.

Factory-built housing needs a fairer opportunity

The legislation also attempts to expand the role of manufactured and modular housing.

It updates the federal definition of manufactured housing, directs FHA to examine barriers to modular-construction financing and modernizes financing standards for factory-built homes.

The housing industry should pay close attention to this section.

Factory-built housing is still burdened by outdated consumer perceptions and inconsistent local treatment. Yet modern manufacturing could help the industry reduce weather delays, control material waste and address parts of the skilled-labor shortage.

This does not mean factory-built housing will replace traditional construction. It means the industry may gain another tool for producing attainable homes in markets where conventional building costs have made entry-level construction nearly impossible.

Expanding housing supply will require more than one type of builder and more than one method of construction.

Small mortgages are an overlooked affordability issue

The bill also recognizes a problem that real estate agents and lenders in lower-priced markets have understood for years: A home can be affordable to the buyer but uneconomical for the lender to finance.

A $75,000 or $100,000 mortgage may require nearly as much processing, compliance and staff time as a significantly larger loan. The lender, however, earns less revenue from the transaction.

The result is a market failure. Lower-priced properties exist, qualified buyers want them, but suitable financing is difficult to obtain.

The legislation authorizes an FHA pilot for mortgages of $100,000 or less and directs regulators to examine compensation, points and fee rules that may discourage smaller loans.

This will not transform lending overnight. Regulators must develop the details, and lenders must decide whether the resulting economics make sense.

Still, acknowledging the problem is meaningful. Affordability is not only about the price of a home. It is also about whether financing is actually available for homes at the lower end of the market.

Do not overstate the institutional-investor provision

Restricting large institutional investors may modestly reduce competition for certain single-family homes in markets where those buyers have been especially active.

It may also be politically popular. But it should not be mistaken for a complete housing-supply strategy.

Preventing one buyer from purchasing an existing home does not create another home. Nor does it automatically make that property affordable to a first-time buyer facing high interest rates, insurance costs, property taxes and repair expenses.

The investor provision may change who is able to bid on some existing inventory. The supply provisions could change how much inventory exists.

That distinction matters.

Passage would only be the beginning

If the bill becomes law, no one should expect a sudden national decline in home prices.

Many of its provisions depend on federal rulemaking, agency execution, local participation and future funding decisions. Local governments will still control most zoning and development approvals. Construction will still face labor, material, infrastructure and insurance costs.

The results, where they occur, will be gradual and uneven.

Some communities will embrace preapproved designs, infill development and factory-built housing. Others will accept federal assistance while resisting the local changes needed to produce meaningful inventory.

That makes implementation the next major test.

Federal agencies should measure success by homes produced, approval times reduced and financing obstacles removed—not by reports written, programs announced or grants distributed.

State and local leaders should be expected to show that regulatory changes result in actual permits and construction.

The real estate and mortgage industries should participate constructively while resisting the temptation to protect outdated processes simply because they are familiar.

The ROAD to Housing Act is not a complete answer to America’s housing crisis.

It is, however, an important change in diagnosis.

Housing affordability is ultimately a supply problem. Until America can build more homes, more quickly, in more forms and at more attainable price points, every other affordability policy will remain incomplete.

Congress appears to have finally understood that.

Now the industry must make sure implementation does not lose sight of it.

Tim and Julie Harris are co-founders of Tim & Julie Harris Real Estate Coaching, bestselling authors and hosts of Real Estate Coaching Radio. For daily news, analysis and strategies for real estate professionals, visit Harris Real Estate Daily.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

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