Senator Warren’s New Bill Includes Estate Tax Hikes, Private Equity Crackdowns, and Incentives

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With the housing crisis being one of the major issues Americans face today, politicians have recently offered various ideas on how to combat it, from President Biden’s rent hike cap to the latest bill from Massachusetts Senator Elizabeth Warren, who has proposed investing $500 billion in an attempt to make housing more affordable over the next decade.

The American Housing and Mobility Act of 2024 would increase estate taxes for wealthy Americans and direct the money toward constructing three million new homes. The amount in taxes, only referred to as a reversal to the estate tax rates present at the end of George W. Bush’s presidency, was not a focal point of the bill’s summary, despite claims that it would pay for itself.

According to an independent analysis of the bill by Mark Zandi at Moody Analytics, the bill would reduce rents by 10% for lower—and middle-class families over the next decade.

“The only way to dig our country out of this housing crisis is to build more housing so everyone has a place to call home,” Warren said in a statement. “My bill will make bold investments in our country’s housing and encourage local innovation to lower housing costs even more — and it’s all paid for by getting America’s wealthiest families to chip in.” 

Other sponsors of the legislation are Sen. Raphael Warnock of Georgia and Rep. Emanuel Cleaver of Missouri. Warren introduced the bill at an event in Roxbury, Massachusetts, with affordable housing developer Urban Edge and garnered the endorsements of over 30 mayors in Massachusetts, including Boston’s Michelle Wu.

Limits on Private Equity Purchases

Once the proposed tax dollars are distributed, nearly $550 billion would support federal housing and housing maintenance programs, with $445 billion invested in the Housing Trust Fund, which developers affiliated with organizations could use to access development and urban renewal grants.

Limiting the number of government-owned, foreclosed, or distressed homes made available to private equity firms, including those through the Claims Without Conveyance of Title program, would facilitate the flow of properties to government-affiliated organizations.

Zoning plays a big part in the proposal, with lawmakers hoping to greenlight land use currently restricted for development to ease construction costs. A new grant program would allocate $10 billion for community infrastructure spending, only available to municipalities that adopt more progressive zoning rules.

Lenders Would Be Held Accountable

In addition, lenders would be held accountable for providing credit to low and moderate-income communities by bolstering the Community Reinvestment Act (CRA) to add scrutiny to non-bank mortgage companies, promoting investment in activities that help poor

and middle-class communities, and strengthening sanctions against institutions that fail to follow the rules. The bill would also allow banks to engage in activities that further the public’s welfare.

The bill would offer a path to homeownership via grants for first-time and first-generation homebuyers through down payment assistance programs, which currently exist through organizations such as Neighborhood Housing Services and NACA. Massachusetts already has its own organization, MassDreams, which provides a similar service.

“Everyone deserves a chance at the American dream. But our housing crisis is exacerbating an affordability crisis — especially in rural America. It’s harder than ever before for folks in Vermont, and across America, to buy a home – or even think about saving enough for a down payment,” said Senator Peter Welch of Vermont in a statement. “This bill will deliver historic federal investments to lower housing costs, create grant programs that support borrowers, and ensure that everyone–in every zip code–can find a place to live at a fair, affordable price.”

Part of the bill would be used to bolster anti-discrimination laws spanning race, gender, sexual orientation, and sources of income as a means of declining housing and doubling the number of units with physical and sensory accessibility.

Warren’s Massachusetts Has Been Hard Hit By The Housing Crisis

“The affordable housing crisis in Massachusetts and across the country has burdened families and communities for far too long,” Senator Markey said in a statement. “[The bill] makes bold investments to equitably develop new affordable housing, limits private equity in the housing market, provides grants to first-time and first-generation homebuyers, and cracks down on housing discrimination.”

Massachusetts is in the eye of the housing crisis storm, with the state having the second highest cost of living in the U.S., behind only Hawaii. Over the last decade, Massachusetts taxpayers have spent between $100 million and $200 million yearly on the emergency shelter program. In 2023, Boston lawmakers allocated more than $325 million, with funds expected to be exhausted by the end of 2024. The homeless issue in the state and other states has been exacerbated by the cost of housing, which has made it difficult for those in the shelter system to find a place to live. Kelly Turley, associate director of the Massachusetts Coalition for the Homeless, said the state’s most recent report on the shelter system showed an average length of stay is 429 days.

“But the maximum number of days was 3,097,” Turley said. “I remember seeing that and just wanting to cry because that is eight and a half years.”

What Elizabeth Warren’s Proposal Could Mean For Real Estate Investors

Affordable housing is an often-maligned sector for real estate investors. Many developers avoid it due to limited profit margins and strict regulations and oversight. Investors also give it a wide berth because of fears about Section 8 housing, which includes damaged apartments, labor-intensive property management, and bureaucracy with inspections.

However, other government-sponsored affordable housing programs have offered developers incentives such as tax breaks and other financial inducements. 

For investors, owning and renting affordable housing such as Section 8 could become more efficient due to the improvement of the housing voucher program, as touted by Warren’s press release. This could mean access to Section 8 vouchers for a greater volume of people and expediting the approval process for tenants.

For house flippers, having a wider pool of eligible home buyers via down payment assistance procurance could enable pre-selling to a waiting list of approved buyers before a project is complete; Savvy flippers would be able to align with government agencies and housing programs to expedite the pre-approval process. 

Final Thoughts

Many investors leave profits on the table simply because they are unaware of the various government-affiliated housing programs and existing incentives. As stated, some have a bad reputation due to restrictions, oversight, and poor management. Senator Warren’s proposal stays true to her political playbook of taxing high earners to enable the less well-off to benefit. Though she has her detractors, few would dispute that something needs to be done about America’s chronic housing crisis.

Should her legislation pass, more money would be available, potentially opening more avenues for investors in the affordable housing space to do deals backed by government funds and provide housing for those who have struggled in the past to rent or own.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.