House Approves Build Back Better Act; NAHB Opposes Bill

The House today narrowly approved the Build Back Better Act, legislation that contains positive housing provisions but also includes other elements detrimental to the residential construction sector that caused NAHB to oppose the overall package.

In letter sent to House leaders prior to the vote, NAHB said: "While this bill represents an historic investment in our nation's housing, NAHB is concerned the tax increases, new building and energy code requirements and increased fines and penalties for OSHA violations would be detrimental to the housing industry during a critical phase in our nation’s economic recovery."

The Good

As noted above, the Build Back Better Act includes several provisions that are good for housing. Of particular benefit to the housing industry is the $150 billion in new funding that will support the creation and renovation of affordable housing across the country. The legislation would:

• Establish a new first-time, first-generation downpayment assistance program for home buyers;
• Create a new home loan program to subsidize 20-year mortgages for first-generation home buyers;
• Fund a new HUD demonstration program to help expand small-dollar lending options for home buyers; and
• Greatly expand funding for the USDA Section 504 program to help low-income home owners in rural areas repair, upgrade, and preserve affordable homes.

• Provide $10 billion for the Home Investment Partnerships (HOME) program. This grant program has traditionally been used as gap financing in conjunction with other programs like Project Based Section 8 or the Low-Income Housing Tax Credit;
• Deliver $1 billion for the Project-Based Section 8 program (PBS8) For the first time in years, this will allow for new contracts under PBS8 — which is a big win for the membership; and
• Earmark $3 billion for the Community Development Block Grant (CDBG) program. This program has traditionally funded needs such as infrastructure, community centers and housing renovation — but not new construction. This package specifically states that new construction is now an approved use of CDBG funds.

Zoning and Education

• Address local zoning reform that will encourage the streamlining of new construction;
• Invest in career and technical education, including programs such as Jobs Corps and YouthBuild;

Taxes

• Increase funding for the Low-Income Housing Tax Credit (LIHTC), although the bill fails to take full advantage of this historic opportunity to further strengthen the program by leaving out many of the LIHTC provisions initially included in the House Ways and Means Committee draft;
• Provide relief for taxpayers affected by the current limit on state and local tax deductions, known as SALT; and
• Provide long-term extensions many of the existing energy tax incentives, although NAHB opposes the structural changes made to the 45L new energy efficient home tax credit.

The Bad

As noted above, there are several provisions in the Build Back Better Act that NAHB opposes, including onerous tax and code requirements that would hurt small business owners and worsen housing affordability:

Taxes

• The expansion of the Net Investment Income Tax (NIIT) to include investment income derived from an active trade or business. In opposing this provision, NAHB said: "Real estate is a capital intensive business, and increasing the cost of doing business by either limiting losses—which are generated by investing in more housing, an activity Congress should seek to encourage—or increasing taxes on rental income via the expansion of the NIIT, is difficult to justify at a time when we face a serious housing shortage. Congress should carefully consider how these tax hikes may exacerbate the ongoing housing affordability crisis facing the United States."
• Retroactive tax changes to qualified contracts, which could affect the LIHTC program.
• Requiring the use of Energy Star for new residential construction as the sole means to qualify for the 45L tax credit. In opposing this provision, NAHB noted that Energy Star is a niche market — less than 10% of single-family and multifamily units were certified in 2020 — and while the program has its merits it will never be adopted widely.

Codes

The requirement for use of the "latest published editions of relevant performance-based building codes." While this provision is intended to incentivize the adoption of the latest published edition of a building code, it is unclear whether states and local governments will continue to have the ability to evaluate and amend updated editions of a consensus-based code prior to adoption.

Moreover, provisions requiring the use of "performance-based building codes and standards" does not guarantee that the code or standard is developed through a consensus process. It is critical that codes and standards are developed in a transparent process to ensure code development fully reflects the public interest.

NAHB is also concerned with grant programs that promote adoption of 'net-zero' provisions, as included in the appendix to the 2021 edition of the International Energy Conservation Code (IECC). These targets are not appropriate or cost-effective for many jurisdictions; rather, the Department of Energy should help states advance the codes in a manner that that best fits the needs of state and local governments.

Next Steps

It is unclear if the Senate will pass the Build Back Better Act "as is" or modify the bill and send it back to the House for another vote. If the Senate moves to alter to the legislation, NAHB will advocate for changes that are beneficial to the housing industry.