A sweeping housing bill is now law. Will it change the market?

• Key takeaway: The ROAD Act may remove some barriers to building and financing homes, but experts say it is only a first step to solving the nation's housing affordability crisis.
• Expert quote: "The bill has a lot of elements and a lot of components to it, as it relates to housing, but there's not a tremendous amount of teeth." — Coby Hakalir, managing director at real estate consultancy T3 Sixty.
• What's at stake: Some of the bill's programs intended to encourage local governments to reconsider zoning and permitting rules require future funding decisions from Congress.

The bipartisan 21st Century ROAD to Housing Act became law Saturday after months of negotiations and a protest from the president. But despite its broad scope, housing experts say the legislation is unlikely to significantly ease the nation's housing shortage or make homes substantially more affordable.

The law updates dozens of existing federal housing programs in an effort to boost housing supply by reducing regulatory barriers and making it easier to build new homes. Among its provisions, it removes the permanent chassis requirement for manufactured homes, restricts institutional investors from purchasing certain single-family rental homes and creates incentives for local governments to consider zoning and permitting changes.

Even though the bill was focused only tangentially on banking — some provisions of the bill were designed to help community banking — the banking industry has a strong stake in the health of the housing market: U.S. mortgage debt stands above $13 trillion and totals more than HELOCs, autos, education and credit-card loans combined. So it is in the banking industry's interests to see a healthier housing market.

But while housing stakeholders largely welcomed the legislation as a step toward addressing the nation's housing challenges, some say the package alone is unlikely to have more than a modest effect on overall housing supply and affordability.

"The bill has a lot of elements and a lot of components to it, as it relates to housing, but there's not a tremendous amount of teeth," said Coby Hakalir, managing director at real estate consultancy T3 Sixty.

One of the provisions receiving the most attention is the change to manufactured-housing rules. By removing the permanent-chassis requirement, the law aims to make manufactured homes more comparable to traditional site-built housing. But housing experts say it remains unclear whether the change will lead to a meaningful increase in production or expand access to mortgage financing.

Jennifer McGuinness-Lubbert, CEO of Pivot Financial, said removing the chassis requirement alone will not immediately change how manufactured homes are financed or resolve long-standing challenges facing the sector.

"The removal of the metal foundation requirements of the chassis is a change that's not necessarily overnight going to make it possible to use a mortgage instead of a personal loan for manufactured housing," said McGuinness-Lubbert. "It's not only about how a house is built, it's also about where it's located, who owns the land and what is the zoning? There are a lot of nuances that go along with that."

McGuinness-Lubbert said lenders also face additional risks when financing manufactured homes on land that a borrower does not own, particularly if the borrower defaults.

"If the borrower defaults, you may be able to repossess the unit, but you're not going to be able to repossess the land, so now as a lender you have to be able to pick this unit up and move it to sell it," she added. The law also directs the Consumer Financial Protection Bureau to investigate barriers preventing lenders from originating smaller mortgage loans, a category that often includes manufactured housing financing.

The review could eventually lead to changes in lender compensation structures or other rules affecting small-dollar mortgages. But housing experts question whether the CFPB will have the capacity to take on the additional work after significant staffing reductions.

"We as an industry have been asking them to revise the compensation rule for a long time, but the CFPB has essentially been gutted from a staff standpoint, so how likely are they to make any meaningful changes?" said Hakalir.

The legislation also assigns additional responsibilities to the Department of Housing and Urban Development, such as identifying ways to expand financing for modular housing, but the department is facing its own staffing and funding constraints. Tim Rood, CEO of consulting firm Impact Capitol DC, said that HUD is currently operating a "skeleton crew" and faces uncertainty over whether it will receive the resources needed to launch some of the programs outlined in the law. 

"HUD's staff is going to be burdened with all of these additional things, and there's no evidence that they have the horsepower to do it, and there's little to no prospect that HUD will see its funding increased," Rood said. 

Some of the bill's programs intended to encourage local governments to reconsider zoning and permitting rules still require funding decisions from Congress, Rood said, creating uncertainty over whether they will be implemented at scale. 

"The federal government has tried in the past to preempt local zoning and permitting, which they haven't found a way to do, so they instead created these incentives to try to get these municipalities to bend their will to the more global issues as opposed to local restrictions or the local resistance," said Rood. Still, housing professionals said the legislation brings greater attention to long-standing challenges in the housing market and could create momentum for future policy changes. 

"This is a big deal that they did this, because it does address some of the supply side issues that I've been talking about," said Hakalir. "Notice I say address, not fix. It does address it. It's a step in the right direction, for sure."