Regulations in the Housing Sector
The federal government shapes the housing sector through regulations that range from environmental restrictions to mortgage disclosure requirements.1 These regulations have material impacts on the way in which housing is constructed, financed and maintained. Below, Subsidyscope provides an overview of the types of regulations that affect housing and several examples of how specific regulations affect the sector.
Unfortunately, there is currently no systematic or comprehensive identification and quantification of regulatory subsidies. Since 1981, federal regulations expected to have an economic impact of more than $100 million are required to undergo a “regulatory impact analysis” (RIA).2 Although RIAs examine the costs and benefits of a regulation, their effects on housing costs are not always reported.3 In the absence of such studies, it can be very difficult to discern whether a specific regulation poses a net benefit or loss to the housing sector, particularly if the rule prompts indirect or unforeseen changes in behavior.
Given these limitations, this Web page provides several examples of housing-related regulations. The regulations presented here are not exhaustive of all those that shape the housing market or may provide housing subsidies; they are intended to illustrate how regulations may impact the supply and/or demand for housing. Further, these regulations may not clearly convey a subsidy to the sector. The rule may impose costs on some, in exchange for providing a benefit for others, which would be a cross-subsidy within the sector. For more information about federal housing regulations and the estimation of costs associated with them, review this report from the U.S. Department of Housing and Urban Development (HUD) on housing impact analyses.
The Many Ways Housing Is Regulated
Whether a single-family home or a multi-unit apartment building, housing must be designed and built in accordance with laws and regulations. Some of these include the federal Environmental Protection Agency's limits on stormwater runoff and the Occupational Safety and Health Administration's protections against lead contamination.4 These requirements are often implemented at the state or local level. HUD maintains a “Regulatory Barriers Clearinghouse” to address the consequences that regulations, such as those related to building codes and zoning rules, may have on the production of affordable housing.
Once a home is occupied, property owners are responsible for operating or maintenance costs, many of which are initiated or changed by regulations. For example, regulations that affect utility prices can change the affordability of a home.5
Finally, the ways in which homes are bought, sold or rented are often subject to regulation. In particular, regulations governing mortgage financing have the potential to significantly shape the housing sector in some localities. In 2009, nearly 47 million homes, or about 61 percent of all owner-occupied homes in the U.S., had a mortgage on the property.6 As such, the ability to own a home is greatly affected by the rules governing banking and finance. Several examples of laws that include regulatory requirements that may affect the purchase, sale and finance of a home are discussed in detail below.
A Few Examples of Federal Housing Regulations
The Community Reinvestment Act (CRA): Encouraging Credit for those with Low- and Moderate-Incomes
The Community Reinvestment Act of 1977 is intended to encourage banks to address the credit needs in their communities, including those of low- and moderate-income neighborhoods.7 Under the CRA, banks must document the activities they undertake to meet the credit needs of low- and moderate-income constituents in their communities; these records are used by regulators in assessing banks’ applications for opening or moving a branch or merging with another bank.8 While originally enacted to meet perceived needs for house financing in inner cities, the CRA has evolved also to cover consumer and business lending, community investments and deposit services.9 The four regulating agencies that implement the CRA are the Office of the Comptroller of the Currency, the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision. Each agency’s implementing regulations can be found here.
As the Congressional Research Service (CRS) explains, proponents of the CRA hold that it stimulates credit for those with low- and moderate-incomes, that it generates a significant amount of loans for home mortgages and small businesses in central cities,10 and that its costs are justified by the large community benefits it provides.11 In terms of the costs, CRA requires extensive paperwork and incurs other expenses on banking institutions.12 CRS also points out that some financial competitors of banks are not subject to CRA.13
In recent years the CRA has undergone various changes. For instance, new rules promulgated in 2005 require banks to assess the outcomes or effectiveness of their CRA activities rather than solely evaluating whether they met “arbitrary targets.”14 In addition, in 2006, the regulating agencies issued guidance that discouraged subprime lending and offered help in mitigating “the subprime lending turmoil.”15
Home Mortgage Disclosure Act: Supporting Equal Access to Housing
The Congressional Budget Office (CBO) notes that the Home Mortgage Disclosure Act (HMDA) and the Fair Housing Act both generally “support equal access to rental housing and homeownership opportunities.”16 HMDA was passed by Congress in 1975 to provide public loan data by census tract. It allows assessments of whether financial institutions are meeting community housing needs. HMDA data also helps public officials distribute public sector investments to areas where private investment is falling short, and allows for the identification of potential patterns of discriminatory lending.17
Fair Housing Act: Prohibiting Discrimination in Housing
The Fair Housing Act (the Act), originally enacted in 1968, prohibits housing discrimination on the basis of race, religion, sex, physical or mental handicap or familial status. Many different activities are subject to the law, including selling or renting housing, making or purchasing loans, conducting appraisals and advertising housing to potential renters or buyers. The Act applies to almost every type of private and public housing, including apartments, mobile homes and rental housing owned by public housing authorities. However, there are some exceptions to the law, such as homes being sold by their owner and certain housing activities undertaken by religious groups.18
The Act affects the housing market, though it is not always clear the extent to which these effects convey subsidies to producers or consumers of housing. Under the law, landlords are required to permit reasonable changes to a unit in order to accommodate persons with disabilities.19 Further, any multi-family housing built after 1991 must meet certain design specifications that make them accessible and usable by those persons.20 State and local zoning requirements are also affected by the Act, which prohibits such requirements from discriminating against group homes for persons with disabilities.21
In addition to outlawing direct discrimination, the federal courts have agreed that some activities can violate the Act by having discriminatory effects, even if those effects were not intended. An example of this is a practice known as “redlining,” in which lenders avoid providing financing or insurance for homes because of characteristics of the neighborhoods in which they are located. The CRS notes that while redlining is “rarely intentionally directed at individual members of a minority group, [it] may have a disparate impact on such persons.”22 Thus, courts consistently find this practice to be in violation of the Act.23
Housing discrimination complaints can be filed with HUD, and are investigated by its Office of Fair Housing and Equal Opportunity.24 Civil actions can also be brought in state or federal courts.25 HUD operates several programs, such as the “Fair Housing Initiatives Program,” that assist local organizations in conducting outreach, training and enforcement of the Act.26
- See Section B.1 of Subsidyscope’s methodology for a brief description of regulatory subsidies. Some argue that a government subsidy occurs when the government fails to correct problems through regulations resulting in certain goods or services being under-priced. For instance, they argue that a government’s failure to adequately regulate peeling lead paint in apartment buildings results in a subsidy to landlords who don’t maintain safe buildings. Subsidyscope does not take this approach. In practice, identifying and quantifying under-regulated market failures would be very difficult.
- Harrington, Winston, Lisa Heinzerling and Richard D. Morgenstern, eds. "Reforming Regulatory Impact Analysis." Resources for the Future. Washington, DC. April 2009. p. 10; and Dacquisto, David J. and David T. Rodda. "Housing Impact Analysis." Prepared for the U.S. Department of Housing and Urban Development (HUD). January 2006. p. 1.
- Dacquisto, David J. and David T. Rodda. "Housing Impact Analysis." Prepared for HUD. January 2006. pp. Foreword, 1.
- Ibid., pp. 8-9.
- Ibid., pp. 4-5.
- U.S. Census Bureau. "American Housing Survey National Tables: 2009." Table 3-15.
- Federal Financial Institutions Examination Council (FFIEC). "Community Reinvestment Act." Last Updated: November 23, 2009.
- Federal Reserve (FRB). "Regulation BB: Community Reinvestment 12 CFR 228."Last Updated: April 21, 2010; and "Definitions." U.S. Code 12, Section 2902. 2010 ed.
- Eubanks, Walter. Congressional Research Service (CRS). “Community Reinvestment Act: Regulation and Legislation.” July 17, 2008. pp. 1-2.
- Eubanks, Walter. CRS. “Community Reinvestment Act: Regulation and Legislation.” July 17, 2008. p. 6.
- Ibid., p. 1.
- Ibid., p. 5.
- Ibid., p. 8.
- Ibid., p. 9.
- Congressional Budget Office (CBO). “An Overview of Federal Support for Housing.” November 3, 2009. p. 8.
- FFIEC. “Home Mortgage Disclosure Act: Background & Purpose.” Last Updated: September 22, 2010.
- Garvey, Todd. CRS. "The Fair Housing Act (FHA): A Legal Overview." January 15, 2010. pp. 1, 4.
- Ibid., p. 7.
- Ibid., p. 8.
- Ibid., p. 9.
- Ibid., p. 4.
- HUD. "Fair Housing--It's Your Right." Last Updated: October 15, 2009.
- Garvey, Todd. CRS. "The Fair Housing Act- A Legal Overview." January 15, 2010. p. 14.
- HUD. "Fair Housing Initiatives Program (FHIP)." Last Updated: November 8, 2007.