2007 legislative & regulatory priorities.

NAA/NMHC JOINT LEGISLATIVE PROGRAM

A Unified Voice for the Apartment Sector

In a unique relationship, the National Apartment Association (NAA) and the National Multi Housing Council (NMHC) have joined forces for more than a decade to form a Joint Legislative Program. This partnership creates a clear, consistent voice for the apartment industry on Capitol Hill.

The NAA/NMHC Joint Legislative Program ensures that apartment firms are able to engage government officials in constructive, ongoing dialogues and participate in policy decisions affecting their ability to provide housing to millions of Americans.

Additionally, the Joint Legislative Program, in concert with 10 other national real estate organizations, is actively involved with the Congressional Real Estate Caucus (CREC) on Capitol Hill.

The Joint Legislative Program will remain in the vanguard of bringing key issues before legislators and regulators in the ongoing debate over the federal government's role in supporting apartment living.

National Apartment Association

The National Apartment Association, based in Arlington, VA, is the leading advocate for quality rental housing. NAA is a federation of 188 state and local affiliated associations representing more than 51,000 members responsible for more than 6.1 million apartment homes nationwide. It is the largest broad-based organization dedicated solely to rental housing. NAA members include apartment owners, management executives, developers, builders, investors, property managers, leasing consultants, maintenance personnel, suppliers and related business professionals throughout the United States and Canada. NAA strives to provide a wealth of information through advocacy, research, technology, education and strategic partnerships. NAA provides six national designation programs; publishes UNITS magazine and other industry publications; holds an annual Education Conference and Exposition; and promotes industry professionalism. For information, call 703/518-6141, e-mail [e-mail] or visit www.naahq.org.

National Multi Housing Council

Based in Washington, D.C., the National Multi Housing Council is a national association that advocates on behalf of the apartment industry and the nearly 16 million American households who live in an apartment community of five or more units. NMHC's members are the principal officers of the larger and more prominent apartment firms and include owners, developers, managers and financiers. The Council's legislative and regulatory agenda targets a wide variety of issues, including housing policy, multifamily finance, environmental affairs, tax policy, fair housing, building codes, technology and human resources. Additionally, NMHC conducts apartment-related research, encourages the exchange of strategic business information and promotes the desirability of apartment living.

Congressional Real Estate Caucus

The Congressional Real Estate Caucus (CREC) was formed in May 1998 at the Real Estate Summit on Capitol Hill organized by the NAA/NMHC Joint Legislative Staff. Reps. Michael Turner (R-Ohio) and Richard Neal (O-Mass.), the former mayor of Springfield, Mass., serve as co-chairs. A Senate Real Estate Caucus has been formed with Sens. Mary Landrieu (D-La.) and Johnny Isakson (R-Ga.) serving as co-chairs. The CREC is endorsed by national real estate groups representing 2 million members and companies that own, build, manage and finance real estate. CREC serves as a forum for members of Congress and real estate professionals to discuss federal policy and its impact on the nation's real estate industry.

CREC seeks to ensure implementation of federal policies that further real estate's contributions to national, state and local economies. Real estate accounts for a quarter of every tax dollar, constitutes half the nation's domestic investment and is responsible for 12 percent of the nation's gross domestic product and an estimated 8.9 million jobs. Thus, protecting and promoting a healthy real estate sector can only serve to strengthen the nation's economy.

A BALANCED HOUSING POLICY NEED

Housing and community development have become top priorities for many communities in recent years, fueled by a worsening affordable housing shortage and growing citizen calls for more livable communities and a better quality of life.

Unfortunately, there is a growing disconnect between the country's housing needs and the federal housing policy. As it has for the past 50 years, national housing policy continues to emphasize homeownership almost exclusively. While homeownership is a worthy goal for many families, it cannot solve many of the country's most pressing challenges.

Raising the homeownership rate still further will not solve the affordable housing shortage. It will not create homes for the nurses, teachers, fire fighters and police officers who cannot find shelter reasonably close to their jobs. It cannot hope to house the estimated 13 million immigrants who will come to this country in the next 10 years or the nation's nearly 74 million Baby Boomers as they age and no longer want to take care of a house. Indeed, for many of America's most pressing challenges, from suburban sprawl to affordable housing, apartments are a much better solution.

By 2030, there will be 94 million more people in the United States than there were in 2000, and those people will need somewhere to call home. If the country hopes to accommodate this population growth without giving up all our green space and adding to pollution and traffic congestion, Americans need a more balanced housing policy that explicitly recognizes and values apartments and rental housing.

Apartments help to create stronger and healthier communities by offering enough housing for the workers that businesses need, by reducing the cost of providing public services, such as water, sewer and roads and by creating vibrant live/work/play neighborhoods.

Not only are apartments needed, but fortunately a growing number of Americans desire them. For generations, married couples with children dominated housing markets. But today those families make up less than 25 percent of American households. In their place are young professionals, childless couples, empty nesters and single parents who want the conveniences, amenities, shorter commutes and financial freedom that apartment living gives them.

NAA and NMHC have joined together to advocate for a more balanced housing policy, one that respects the rights of individuals to choose housing that best meets their financial and lifestyle needs. NAA/NMHC urge decision-makers at all levels of government to work with the apartment industry to craft a smarter housing policy that:

* Ensures that everyone has access to decent and affordable housing, regardless of his or her housing choice;

* Respects the rights of individuals to choose the housing that best meets their financial and lifestyle needs without disadvantaging, financially or otherwise, those who choose apartment living;

* Promotes healthy and livable communities by encouraging responsible land use and promoting the production of all types of housing;

* Recognizes that all decent housing, including apartments, and all citizens, including renters, make positive economic, political and social contributions to their communities; and

* Balances the expected benefits of regulations with their costs to minimize the impact on housing affordability.

AFFORDABLE HOUSING SOLUTIONS

Production and preservation of affordable multi-family housing continues to be critical to remedy the shortage of decent and affordable housing for low- and moderate-income families. Additionally, the shortage of rental housing for those above the typical subsidy level of 60 percent of area median income has also become acute. Seeking programs that will help with the development of housing for families in the income range of 60 percent to 120 percent of area median income has also become critical to meet the growing demand for affordable housing for many families, especially in high-cost markets. Meanwhile, most current subsidies are targeted to provide housing only for low-income families at or below 50 percent of area median income. Because there are not enough resources to serve the full range of families that need housing at affordable levels based on their income, a growing number of families in need remain in inadequate or substandard housing. Mixed-income housing is another means to expand the reach of rental housing to a broader range of low-income, moderate-income and working families.

ISSUES

SECTION 8 HOUSING CHOICE VOUCHERS

Issue Discussion: Our federal efforts in 2007 take place amid a bigger policy shift as the federal government continues its effort to transfer responsibility for affordable housing to state and local governments.

For decades, Section 8 vouchers have provided housing assistance to struggling families. But the program has been plagued with inefficiencies and onerous bureaucratic requirements that discouraged private owners from accepting vouchers. As a result, many vouchers went unused, which allowed Congress routinely to rescind money from the program to fund other operations. In the late 1990s, some program reforms were implemented that made the program more attractive to private apartment owners, and voucher utilization rates rose. NAA/NMHC and others have spent several years working with the U.S. Department of Housing and Urban Development (HUD) to identify additional programmatic reforms to raise utilization even higher to serve more people.

We believe that if we are going to meet the housing needs of America's low- and moderate-income families, it is imperative that we improve the Section 8 program. NAA/NMHC believe that more apartment owners would participate in the Section 8 program if the costs of renting to voucher residents were more comparable to the costs of serving unsubsidized residents. The program must be more "transparent" to the market. But we urge Congress and HUD to reform the existing Section 8 program instead of turning the program into a block grant.

Legislation introduced in the 109th Congress, called the "Section 8 Voucher Reform Act of 2006" (H.R. 5443), provided meaningful steps to improving the program and has the support of NAA/NMHC. In particular, we endorse the provision that would reform the burdensome inspection process for properties that want to accept vouchers. We believe that the language included in H.R. 5443 will ensure that properties continue to meet Housing Quality Standards, while at the same time reducing leasing delays and repetitive inspections.

We commend both Houses of Congress for their efforts to provide adequate funding for the Section 8 Housing Choice Voucher program. Before Congress adjourned in 2006, it agreed to continue funding through September of 2007. As owners and developers of affordable housing in the private sector, we know first-hand how successful vouchers have been in providing housing opportunities to eligible families. And we urge Congress to pay particular attention to the issue of how vouchers are allocated to local communities. We believe that the approach taken in the Senate FY 2007 Appropriations bill, which bases agencies' budgets on their leasing and costs from the most recent 12 months, is sound and will lead to the most efficient and stable results for residents, program administrators and owners.

In the past three years, we have learned through experience that basing voucher funding on outdated information from a potentially unrepresentative three-month period can leave local housing agencies without the resources needed to meet current commitments. In addition, the rigid funding formulas of the past few years have left current voucher holders vulnerable; have minimized the ability of public housing agencies (PHAs) to utilize the vouchers authorized by Congress; have exacerbated concerns that it is not prudent to lend or invest private capital in affordable housing; have reduced housing choice for voucher holders; and have inhibited new construction and rehabilitation of additional low-income units.

Against the backdrop of these funding challenges, several states and localities have attempted to address their affordable housing shortages by forcing housing providers to accept Section 8 vouchers. Some jurisdictions have even made families and persons receiving housing assistance payments a protected class under state civil rights laws, making it a civil or even a criminal violation to opt out of the Section 8 program. These efforts go against the principles on which the Section 8 program was created. The program's creators recognized that participants would bear additional administrative and regulatory costs above and beyond those necessary to serve as conventional market housing providers. Thus, they implicitly preserved the right to participate or not participate. They failed to make this distinction explicit in the federal law, however, and several state legislatures have considered measures to effectively mandate participation in the Section 8 program.

Action Requested: NAA/NMHC strongly advocate reform of the current Section 8 housing choice voucher program to make the program more transparent and to reduce burdensome regulatory requirements. We urge Congress to provide sufficient funding for all authorized vouchers and to reject efforts to turn the program into a state-based block grant. In addition, we urge states to respect the federal pre-emption of state and local laws intended by the program to keep participation voluntary.

FRA MULTIFAMILY MORTGAGE INSURANCE PREMIUM

Issue Discussion: The FHA Multifamily Mortgage Insurance Premium provides necessary funding for "affordable rental housing production. The premium is associated with the cost to operate the program and to create capital reserves against the costs associated with losses because of mortgage defaults. Recent actions by HUD to increase the insurance premium were stopped at the last minute because of efforts by NAA/NMHC and others.

The actions by HUD did not require any review of the program need associated with changes to the multifamily mortgage insurance premium, and because the premium increase offset budget needs in other HUD programs, even Congress found it difficult to prevent the increase in the insurance premium. NAA/NMHC, as part of efforts to stop the premium increase, called for such actions to be directly associated with program costs and risks and asked for an assessment of the need for a premium change to accompany any request for a premium change.

Action Requested: NAA/NMHC urge Congress to require HUD conduct a program assessment associated with any

change in the multifamily mortgage insurance premium.

EXIT TAX

Issue Discussion: Before 1986, the tax code encouraged limited partner investors to provide equity to multifamily properties in exchange for tax savings. The Tax Reform Act of 1986 removed the ability of most investors to deduct losses generated by their properties from otherwise taxable income, which greatly reduced investors' economic interest in apartments.

Under the current tax laws, when owners/investors sell a property, they must pay capital gains tax and depreciation recapture taxes on any gain. Many properties cannot generate a high enough sales price to cover these "exit taxes." This places properties with lesser economic value at risk of deterioration because the owners have no incentive to invest additional funds in a property with little or no cash-flow. As a result, many owners simply opt to hold on to the properties until their death, at which point no taxes will be assessed on the depreciated gain (and the possible capital gain above that) because the property's basis will be "stepped-up" at death to the current market value.

In 2003, the congressionally chartered Millennial Housing Commission recommended that Congress pass exit tax relief for owners who transfer affordable housing properties to entities that agree to preserve the properties and keep them affordable. Legislation based on this recommendation has been introduced in Congress in the past.

Action Requested: NAA/NMHC urge Congress to approve legislation to preserve affordable housing by providing broad "exit tax" relief to owners of apartment properties who transfer their properties to new owners with the capital and the commitment for renovation and modernization.

CAPITAL GAINS/DEPRECIATION RECAPTURE

Issue Discussion: In 1997, when Congress reduced the maximum tax rate on long-term capital gains to 20 percent (for assets held more than 12 months), it imposed a 25 percent depreciation recapture rate on the portion of the gain assigned to the depreciable portion of a property. Thereafter, the capital gains tax rate was further reduced to 15 percent (through 2010), but the depreciation recapture rate was left unchanged. Imposing such a high depreciation recapture tax on apartment properties that have been depreciated from original cost fails to recognize the unique nature of commercial real estate property. It also discriminates against real estate in favor of other asset classes.

In 1999, Congress approved a tax bill that reduced both the capital gains and the depreciation recapture rate, but the measure was vetoed. In January 2004, the Treasury Department recommended simplification of the calculation of capital gains depreciation recapture on certain types of assets, including real estate, by eliminating the special 25 percent rate and replacing it with a new "blended" rate based on a combination of ordinary income and capital gains tax rates.

Action Requested: NAA/NMHC urge Congress to repeal the 25 percent depreciation recapture rule established in 1997.

DEPRECIATION

Issue Discussion: Current tax law allows apartment properties to be depreciated over a 27.5-year period, but a 2000 study by NAA/NMHC suggests that may be too long. Our research showed the true useful life of an apartment property is probably closer to 20 to 25 years.

In 2001, the U.S. Treasury Department released its initial report on depreciation and called for further study. There was no legislative follow-up until 2005, when legislation was introduced and a Senate subcommittee held hearings to evaluate the entire depreciation system with a particular orientation toward equipment and intangible assets.

Action Requested: NAA/NMHC encourage Congress to continue efforts to overhaul the existing depreciation system and urge the U.S. Treasury Department to reinvigorate its study of useful depreciation lives so that tax law will reflect economic reality.

UTILITY ADJUSTMENTS FOR TAX CREDIT PROPERTIES

Issue Discussion: NAA/NMHC strongly advocate changing Section 42 of the Internal Revenue Code to create alternative methods for establishing utility allowances for low-income housing tax credit (LIHTC) properties. Currently, proposed regulations are under review by the U.S. Treasury Department and are expected to be released for comment by the middle of 2007. NAA/NMHC have led a coalition of housing industry trade organizations seeking the regulatory change. This change is critical to maintain the integrity of LIHTC-financed properties that provide safe and decent rental housing to millions of low- and moderate-income families. The changes are needed to offset the decline in rents due to inaccurate adjustments for resident-paid utilities. It is estimated that these adjustments can be up to twice as large as needed to provide relief to residents under the law. The NAA/NMHC approach allows for greater flexibility to property developers and owners to establish accurate utility cost estimates while preserving current methods.

Internal Revenue Service (IRS) rules require rents at LIHTC properties to include a utility allowance for resident-paid utilities. However, the methods currently used to estimate those costs tend to overestimate actual resident utility cost, which, in turn, reduces the gross rent received by property owners.

NAA/NMHC created an industry coalition to seek appropriate changes. After an exhaustive evaluation of all the alternative methods and practices available to estimate utility costs, a proposal to expand the allowable methods was submitted to the IRS. The IRS has drafted regulations and pending final review it is scheduled to release the regulations in 2007.

Action Requested: NAA/NMHC urge the IRS to promptly release proposed regulations on alternative procedures to estimate LIHTC utility allowances for review and comment.

Renter Occupied Housing
U.S. Households: Renters & Owners

TYPE OF HOUSEHOLD   NO. OF HOUSEHOLDS   % OF U.S. TOTAL
                     (IN THOUSANDS)

Renter Occupied          36,068             31.53%
  Housing
Owner Occupied           78,333             68.47%
  Housing
TOTAL                   114,401            100.00%

TYPE OF HOUSEHOLD   NO. OF RESIDENTS
                     (IN THOUSANDS)

Renter Occupied           85,439
  Housing
Owner Occupied           208.397
  Housing
TOTAL                    293,836

Source: NMHC tabulations of the 2006 Current Population Sunvey, Annual
Social and Economic Supplement. U.S. Census Bureau

HOUSING POLICY

NAA/NMHC will continue to advocate for a more balanced housing policy that effectively addresses our nation's most pressing housing needs, and one that explicitly recognizes the importance of apartments in the nation's future growth plans. We will oppose efforts to direct even more of our limited federal housing resources toward homeownership at the expense of critical rental housing programs.

ISSUES

BARRIERS TO MULTIFAMILY DEVELOPMENT

Issue Discussion: Apartments are a vital, but an often overlooked, part of the community development toolbox. They are more compact and less sprawling so they use municipal infrastructure more efficiently and preserve greenspace. They create vibrant, walkable neighborhoods, which help reduce auto traffic and air pollution. They provide homes within reach of municipal employees, such as police officers, teachers and nurses. And they improve economic prosperity by providing much-needed housing for the employees local businesses need. If we are serious about wanting to change the future and create healthier and stronger communities in this country, we have to think about apartments in a more positive way.

Our population is growing faster than many people realize. By 2030, there will be 94 million more people in the U.S. than there were in 2000. All of these people need somewhere to live, somewhere to work and somewhere to shop. The only way we can accommodate this kind of population growth without sacrificing quality of life is to embrace higher-density, mixed-use development that integrates homes, schools, shopping, jobs and entertainment into our neighborhoods. High-quality apartments are an important part of this future growth plan.

Unfortunately, many Americans oppose apartment construction because of outdated fears about rental housing. Local governments, eager to retain the support of voters, erect barriers to apartments. Even worse, many of the country's zoning laws are more than 50 years old and actually prohibit the kind of vibrant, walkable communities that citizens want.

NAA/NMHC's outreach, seeking a more level playing field between rental housing and homeownership, has produced numerous successes, including the U.S. Department of Housing and Urban Development's (HOD) effort to remove barriers to multifamily housing through its new Regulatory Barriers Clearinghouse.

Action Requested: NAA/NMHC strongly support legislation to fund research, identify model programs, analyze the economic and social benefits of a balanced approach to housing and revise outdated laws that increase the cost of providing affordable housing.

RENT CONTROL

Issue Discussion: NAA/NMHC encourage affordable housing production and voucher assistance rather than rent control to address the national challenge of affordable housing availability. Forbes magazine lists rent control as one of the 10 worst economic ideas of the 20th century, saying: "Here we have a policy initiative that has done huge damage to cities around the globe. It is very hard today to find an economist supporting rent control."

"[M]ost of the benefits produced by rent controls aid moderate-, middle- and upper-income households, rather than the poor households they may have been adopted to help," concludes Anthony Downs of the Brookings Institution in his definitive academic research work, "A Reevaluation of Residential Rent Controls." HUD concurs: "The benefits of rent control are poorly targeted ... Significant numbers of well-to-do renters live in rent-controlled apartments and enjoy substantial benefits, while many lower-income renters receive little or no benefit." The Advisory Commission on Regulatory Barriers to Affordable Housing, a blue-ribbon panel of experts, wrote: "As a means of redistributing income to the poor ... rent control is extraordinarily inefficient, if not counterproductive."

Action Requested: NAA/NMHC urge Congress and the states to provide sufficient incentives and to remove unnecessary and costly barriers to developing affordable housing, thus relieving the critical shortage of rental housing.

HOMEOWNERSHIP INCENTIVES

Issue Discussion: NAA/NMHC recognize the importance of homeownership to America; however, there is a dangerous and growing disconnect between housing policy and housing needs. Mayors and congressional commissions agree that our top housing priority should be creating more rental housing, yet every year more of our limited resources are diverted to homeownership at the expense of other critical housing needs. NAA/NMHC believe that a "homeownership above all else and at any cost" policy is unwise. Trying to create a nation of too many homeowners will ultimately harm not only many of those owners, but also our local communities.

Homeownership is a special part of the American fabric, but there is mounting evidence that we may be pushing the homeownership envelope too far. In the third quarter of 2005, FHA mortgages that were three or more months overdue were at record levels. Foreclosures on conventional mortgages have remained fiat. However, even with quarterly fluctuations, FHA foreclosures continue their upward trend. In the sub-prime loan arena, mortgages that were three or more months overdue have not subsided entirely from their 2003 peak levels.

Rising foreclosures not only hurt working families, they also hit local communities hard. When families default and abandon their houses, property values decline and neighborhoods can spiral downward. Cities, counties and towns lose tax revenue and incur higher costs associated with vandalism and other social problems.

We are not the only voice raising concerns. In a November 27, 2005, Los Angeles Times article, Lew Sichelman reports that James Chung, president of Reach Advisors in Belmont, Mass., conducted a survey that suggests that "even if prices simply flatten, it is going to cause significant pain and have a large impact on the economy. Appreciation isn't bonus money for a lot of families; it's money that's already been spent."

Action Requested: NAA/NMHC urge Congress to fully consider the nation's most pressing housing needs and the needs of working families before advancing any additional homeownership incentives.

ENVIRONMENT

The 110th Congress is expected to consider many of environmental issues with significant implications for the real estate industry. Energy efficiency is a legislative and regulatory priority, as are issues related to eminent domain. NAA/NMHC will be closely monitoring both regulatory and legislative developments that significantly affect apartment owners, managers and developers.

ISSUES

ALTERNATIVE ENERGY RESOURCES

Issue Discussion: Current projections indicate that United States energy consumption will increase by 28 percent to 35 percent by 2030, and that these energy demands are projected to be met by reliance on traditional fossil fuels, including oil, gas and coal. Despite growing concerns over the environmental impacts of fossil fuels, dependence on foreign energy sources and diminishing supplies of traditional fuels, the federal government has decreased its spending on research and development of energy technologies by 85 percent over the last three decades. A report by the U.S. Government Accountability Office (GAO) in January concluded that current levels of federal funding are not sufficient to develop alternative energy sources that can protect consumers from energy supply disruptions and economic uncertainties.

Action Requested: (1) Congress should fund research and development programs needed to overcome the technological and market barriers to the use of alternative and advanced energy technologies. (2) NAA/NMHC support legislation to scale-back federal incentives to traditional fossil fuel producers and redirect funds to alternative energy and energy efficiency programs. (3) NAA/NMHC support the extension and expansion of tax incentives designed to stimulate investment in alternative energy technologies.

ENERGY EFFICIENCY AND GREEN BUILDING

Issue Discussion: NAA/NMHC support the development of federal policies to encourage property owners to incorporate energy-efficient building technologies, renewable energy sources and conservation measures into their buildings and communities. We are concerned that by focusing attention on increased energy exploration and benefits to traditional energy producers, the federal government is missing an opportunity to create incentives for higher-performance buildings.

In addition to the federal approach, an increasing number of state and local governments are actively promoting energy-efficient and green building. However, some far-reaching plans may prove to be problematic for the apartment industry. Numerous jurisdictions have proposed and enacted legislation that would require new public and private construction to meet strict green building standards. While NAA/NMHC support the principles behind green building, concerns over costs, product availability and technical and operational limitations should be fully addressed before mandatory green codes are implemented.

Action Requested: (1) Congress should incentivize energy-efficient and green building through an expansion of the tax provisions enacted in the Energy Policy Act of 2005. (2) Congress should fund new and existing education and research efforts to spur energy efficiency and conservation, such as the federal Energy Star and weatherization programs. (3) NAA/NMHC encourage the voluntary use of practical, proven and cost-effective energy-efficient and green building principles in new and existing projects.

EMINENT DOMAIN

Issue Discussion: The U.S. Supreme Court's 2005 decision in the Kelo v. City of New London case continues to spur legislation and litigation nationwide. Kelo upheld the government's right to use eminent domain for economic development purposes, even where the property seized is transferred to another private entity. While the decision was widely criticized by property rights activists, local authorities and smart growth advocates supported the ruling, reasoning that eminent domain is an important development tool. Since Kelo, Congress and many state legislatures have struggled to craft legislation that balances private property rights with the need for effective and certain land-use policies.

Following Kelo, both federal and state legislatures took steps to statutorily overrule the decision. Nearly 30 states have enacted laws placing restrictions on the use of eminent domain, but federal attempts to limit Kelo were largely unsuccessful. The U.S. House of Representatives passed two eminent domain bills, but neither measure passed the full Congress. Strong bipartisan support for the issue could fuel reconsideration of the bills in the 110th Congress. These measures would have the practical effect of constraining the authority of municipalities to regulate land use and could potentially stymie smart growth and density development projects. To that end, groups such as the U.S. Conference of Mayors have cautioned against a federal approach that would have unintended consequences for local land-use decisions. Most recently, the 2006 elections showed voter dissatisfaction with the progress of eminent domain legislation through the overwhelming passage of nine state ballot measures that restricted the government's eminent domain power.

Action Requested: (1) NAA/NMHC discourage any federal action that diminishes the ability of local and state governments to make individualized land-use and development decisions. (2) NAA/NMHC support well-crafted legislation that protects the interests of private property owners without unduly burdening new development projects. (3) NAA/NMHC support the continued analysis of the role of eminent domain in private development projects and the possible unintended consequences of restrictions on its use.

Characteristics of Rental Apartment Units, 2005
(units in thousands)

                         ALL APARTMENT     BUILT     BUILT PRIOR TO
                             UNITS       1990-2005        1990

TOTAL                       17,543         2,686         14,857
Number of bedrooms
  Zero                         774            34            738
  One                        8,126         1,080          7,046
  Two                        7,327         1,255          6,071
  Three +                    1,315           316            999
Number of baths
  Zero                         260            11            249
  One                       14,343         1,559         12,784
  Two +                      2,940         1,116          1,824
Amenities
  At Least One               3,125           355          2,770
    Working Elevator
  With Central               9,343         2,210          7,134
    Air Conditioning
  With Dishwasher            8,755         2,240          6,515
  With Washing Machine       4,748         1,697          3,050
  With Dryer                 4,318         1,689          2,629
Apartment Units
    in Structure
  5 to 9                     4,960           589          4,371
  10+                       12,583         2,097         10,486
Structure Height
  One Story                    920           160            760
  Two Story                  7,313           956          6,175
  Three Stories              4,940         1,108          3,832
  Four + Stories             4,552           462          4,089

Source: NMHC tabulations of the U.S. Census Bureau's 2005 American
Housing Survey.

Data for apartment units includes only those units in structures with
five or more units. Estimates are for units either renter occupied,
rented but not vet occupied, or vacant and available for rent.
Estimates are based on sample data and are subject to sampling and
non-sampling error. Due to rounding and missing data for some
variables, figures do not always total.

FINANCEN

Given the capital-intensive nature of the apartment industry, finance remains one of NAA/NMHC's most important issues. The current success of the multifamily housing debt and equity markets underscores both the legacy of federal housing finance programs and their continuing importance to the apartment sector.

We will continue to work toward establishing a wider availability of capital for all phases of apartment activity--new construction, refinancing, rehabilitation and sale. We will also continue to work to improve the efficacy of financing programs that produce high-quality rental housing for everyone from lower-income families to the millions of moderate-income families who are not eligible for government subsidy but who are nevertheless struggling to cover the cost of their housing.

ISSUES

REGULATORY OVERSIGHT OF FANNIE MAE AND FREDDIE MAC 

Issue Discussion: Congress is expected to act a legislation early in its 110th session to establish a new regulator for Government Sponsored Enterprises (GSE) Fannie Mae, Freddie Mac and the Federal Home Loan Banks. It is anticipated that the new legislation will be similar to that passed during the last session by the U.S. House of Representatives (the Federal Housing Finance Reform Act, H.R. 1461) by a vote of 331-90. The major obstacle--the level and what investments Fannie Mae and Freddie Mac could hold in their investment portfolios--was removed as the administration agreed to allow such activities to be set by the new regulator. Because this favorably impacts how multifamily mortgages are purchased and held by Fannie Mae and Freddie Mac, NAA/NMHC favor this approach.

NAA/NMHC oppose legislation that places restrictions on multifamily mortgages eligible to be held in the portfolios of the GSEs (often referred to as the retained portfolio). In our view, such limitations would be overwhelmingly damaging to the multifamily housing industry and could lead to higher-cost loans, less flexible loan terms and a reduction in their conventional lending. There is a push to have Fannie Mae and Freddie Mac sell mortgages purchased through the secondary securities markets, which has not been the process for multifamily mortgages. Because multifamily mortgages have prepayment protection to the security holder and generally are more complicated than single-family mortgages, the two mortgage giants have generally held the mortgages in their investment portfolios or purchased the securities as they would other investments. In the 109th Congress, NAA/NMHC supported the legislation passed by the House of Representatives, which would not establish portfolio limitations by law, but would instead rely upon the regulator to look at the financial safety and soundness aspects of the company operations and risk factors in setting restrictions.

In the 110th Congress, we are optimistic that the House and the Senate can work toward the creation of a regulator that would be given sound direction but would be allowed to make its own decisions. We are encouraged because both the Treasury Department and the White House have indicated support for this approach.

Action Requested: NAA/NMHC urge Congress to establish a strong regulator without specific requirements about the type of investments that can be held in portfolio, leaving specific decisions to the regulator.

Federally Assisted Rental Housing: 2006

                NUMBER OF HOUSING UNITS INCLUDING WANT

Public (1)                                          1,206,933
Section 8 Program
  Vouchers (1)                                      1,801,136
  Moderate Rehabilitation (1)                          31,074
  New Construction and Substantial Rehabilitation         n/a
  Section 236 Program (2)                             304,947

Sources:

(1) http://pic.hud.gov/pic/RCRPublic/rcrmain.asp. Time frame
covered is August 2005 through November 2006

(2) http://www.hud.gov/about/budget/fy06/cjs/part2/housing/
hsgpaymuent.pdf. Fiscal Year 2006 figure is an estimate.

APARTMENT MANAGEMENT

Affordable rent is affected by numerous government regulations and actions. Government action or inaction on key issues can adversely affect apartment operating costs, which in turn result in higher rents required to offset those costs. Although many important decisions affecting both large and small stakeholders in the residential property management industry are matters of state law, federal legislation and regulations significantly affect market-rate and subsidized apartments alike.

ISSUES

TERRORISM RISK INSURANCE EXTENSION ACT (TRIEA)

Issue Discussion: The federal terrorism insurance backstop created by the Terrorism Risk Insurance Act (TRIA) of 2002 and extended by the Terrorism Risk Insurance Extension Act (TRIEA) of 2005, a revised version of the TRIA program, is set to expire at the end of 2007. TRIEA provides for a system in which the federal government shares the risk of loss and requires insurers to offer coverage for certain acts of foreign terrorism on the same terms and conditions as property and casualty insurance.

Some of the revisions made to TRIA include an increase in the portion of losses that insurance carriers would have to pay, a significant increase in the amount of loss that triggers federal involvement and the creation of a President's Working Group to study the long-term availability and affordability of insurance for terrorism risk, including group life and coverage for chemical, biological, nuclear and radiological (CBNR) events. The President's Working Group concluded that terrorism insurance was widely available and at declining prices. It also concluded that TRIEA had negatively impacted the development of private sector insurance capacity. The President's Working Group did, however, conclude that CBNR coverage was generally not available from the private market. The Government Accountability Office reached a different conclusion in its report, saying that a purely market-driven expansion of coverage is highly unlikely in the near future.

Action Requested: NAA/NMHC urge enactment of a meaningful long-term solution for terrorism insurance. When the 2007 renewal process commences, it is expected that policyholders will again face conditions similar to the run-up to the 2005 expiration of the original TRIA program. It is clear that a long-term solution is necessary to make terrorism insurance available at affordable prices, rather than temporary stop-gap measures every few years.

NAA/NMHC will continue to work with our industry partners in the Coalition to Insure Against Terrorism (CIAT) to advance a legislative solution that will meet the needs of all stakeholders.

PROPERTY INSURANCE

Issue Discussion: The major catastrophe losses of 2005 had a devastating impact on the 2006 property insurance market in many states across the country. Property owners with catastrophic exposure, such as severe wind and earthquakes, experienced significant cost increases of up to 400 percent and reduced policy limits. The mild hurricane season of 2006 unfortunately will not reverse this trend and experts predict that the best that policyholders can expect to see in the foreseeable future is a stabilization of market conditions.

While 2005's record losses are largely to blame, it is only part of the story. There are several factors driving the higher prices and diminishing capacity. First, insurers rely on loss modeling to underwrite risks. However, these models significantly underestimated the losses of 2004 and 2005, thus necessitating a rework of the models and forcing insurers to take a more conservative view of their results and allocating their capacity more carefully in catastrophe-prone areas. Second, the insurance company rating agencies have revised their criteria to more closely scrutinize exposures in catastrophe-prone areas, thus forcing some carriers to reduce the number of policies they write. Third, and probably the most direct link to the price increases, is the decision of re-insurers to provide less coverage to their insurers and at much higher prices, thus impacting insurers' ability to offer coverage to their policyholders with some carriers pulling out of markets altogether or limiting business to renewals only.

While there are strategies that policyholders should employ to manage the impacts of hardening markets, many believe there is also a role for the federal government to play to ensure adequate capacity in times of severe weather events, such as earthquakes and hurricanes, that cannot be accommodated by the private market alone.

The 109th Congress introduced, and failed to act on, several pieces of legislation to address the property insurance crisis. So it will be up to the 110th Congress to renew this effort. Congress will also consider legislation to reform the National Flood Insurance Program (NFIP) to ensure its continued and future soundness and solvency.

Action Requested: Congress has an obligation to hold hearings with all stakeholders in the property insurance arena to assess the market conditions and to take steps to enact a reasonable legislative solution that will ensure policyholders can obtain affordable and adequate coverage when the private market is not able to accommodate them. Various proposals to create a federal backstop, a Disaster Reinsurance Fund similar to the TRIA Program, are among the most common options and should receive full consideration.

ACCESSIBILITY

Issue Discussion: Disability advocates and the federal government continue to turn up the heat to enforce the Fair Housing Act's (FHA) Design and Construction requirements on the apartment industry. Since 2005, several NAA/NMHC members have been challenged with lawsuits over their alleged failure to comply with the accessibility requirements of the law. The FHA imposes specific accessible design features on properties that meet certain criteria. Unfortunately, guidance from the federal government has been confusing and therefore largely misunderstood by the industry. NAA/NMHC have been working to identify and create educational opportunities to help the industry comply with the often ambiguous provisions of the law as well as to seek a long-term solution to help mitigate the threat of litigation. This combined educational and advocacy initiative will be developed with the help of legal and building industry expertise to ensure a comprehensive approach.

NAA/NMHC will continue to educate policymakers and regulators about the ongoing efforts to combat discrimination in housing, especially for the disabled.

Action Requested: Policymakers and regulators need to know the challenges facing the multifamily industry as it seeks to comply with interpretations of law that often present difficult targets because of numerous revisions. NAA/NMHC will seek opportunities for clarifications and relief if appropriate.

IMMIGRATION REFORM 

Issue Discussion: To strengthen national security and address the country's current and future economic needs, Congress must enact comprehensive immigration reform. The combination of a need for workers and an inadequate immigration system has caused an unacceptable status quo. Workforce needs alone generate more demand on the deficient system than can be handled. Experts estimate that there may be as many as 12 million undocumented workers throughout the country performing work that most Americans will not do themselves. Regardless of whether they seek permanent or temporary status, immigrants applying for legal residency under the current system are faced with overly complex procedures, inflexible regulations and unreasonable delays. By failing to create adequate legal avenues for hiring foreign workers and not addressing the status of workers already here, Congress and the administration are not fully safeguarding either the economy or our borders.

The vast majority of businesses want to obey the law but the system lacks an accurate means of verifying the status of prospective employees. Even the most diligent employers have difficulty identifying forged documents. Careful employers should not be penalized when they implement proper screening techniques. Employers currently have voluntary access to the federal government's Basic Pilot electronic/telephonic verification system to ensure that all employees are authorized to work. While this is a good start, this experimental program has an unacceptable error rate. Nonetheless, the U.S. House of Representatives passed a controversial border-security measure (H.R. 4437) during the 109th Congress that would mandate participation in the error-fraught Basic Pilot system for both new and existing employees. A Senate-passed measure (S. 2611) would have imposed expanded verification requirements only to new workers. Effective employee screening and workplace enforcement are essential, but those components are only one part of meaningful comprehensive reform.

U.S. immigration laws must be reformed to attract immigrants that our economy needs, but the answer does not lie in new laws that solely involve employers. Improving national security does not simply require better employment verification enforcement, but a more rational, comprehensive immigration policy. Specifically, a comprehensive immigration reform package should improve border security, include a temporary guest worker program that would allow employers to hire certain pre-screened foreign workers and address the status of the undocumented individuals currently in the country.

Congress is expected to address immigration reform in the 110th session. The shift in party control along with the Bush Administration's continued urging for comprehensive immigration reform that includes a guest worker program create a positive climate in the 110th Congress.

Action Requested: NAA/NMHC strongly urge Congress to approve legislation that includes an accurate, cost-effective employment verification system as part of a comprehensive package that also includes a temporary worker program.

SMALL BUSINESS HEALTH PLANS

Issue Discussion: Many individuals who own or who are employed by small businesses lack health insurance because they cannot afford to purchase coverage. Unlike the market for medium- and large-sized employee-sponsored health benefits, there is virtually no competition among insurers that cater to small purchasing groups. This is a major contributing factor to the inaccessibility of affordable coverage for small businesses.

Small business health plans (SBHPs) are one approach to improving access to affordable health insurance for employees of small businesses. Allowing groups of small businesses to join together through an association would enable such groups to enter the larger, more competitive market for health insurance. SBHPs would create greater bargaining power, administrative efficiency and reduced premiums. According to Congressional Budget Office estimates, SBHPs would make possible average premium reductions of 13 percent for participating employers.

The U.S. House of Representatives passed a bipartisan bill (H.R. 525) addressing this critical issue in July 2005. In the U.S. Senate, proposed legislation (S. 1955) failed in May 2006 in a cloture vote when it garnered 55 votes but not the 60 votes necessary to proceed.

Action Requested: NAA/NMHC urge Congress to adopt legislation to improve access to affordable health insurance coverage for millions of small business owners and employees through SBHPs.

HOMELAND SECURITY 

Issue Discussion: NAA/NMHC strongly support ongoing efforts to enhance homeland security while taking appropriate measures to ensure such actions do not unnecessarily interrupt or significantly burden the business operations of the apartment industry. In the post-September 11 world, the business community, including the apartment industry, is being confronted with what seems like daily doses of new government initiatives to protect the country against terrorism. Apartment firms now screen residents and employees against terrorist lists and report large cash transactions to federal counter-terrorism officials. They are also complying with enhanced lease termination rights enacted in 2003 for deploying servicemembers.

In addition, the 9-11 Commission Report includes a provision encouraging the private sector to adopt a disaster and emergency preparedness standard, such as the NFPA 1600. It advises the insurance industry and credit-rating agencies to "consider a company's compliance standards" when making underwriting/credit-worthiness decisions. Imposing a single standard for preparedness upon a diverse commercial real estate sector is simply not workable. Recognizing the need to tailor each plan to the specific business capacities of a firm, encouraging a voluntary approach to instituting emergency preparedness plans is far more rational.

Action Requested: The 109th Congress was criticized for not adopting all of the recommendations of the 9-11 Commission. Therefore, the 110th Congress may be inclined to make this legislation a priority. NAA/NMHC urge Congress and regulators to take a reasonable approach when instituting new laws intended to enhance homeland security so that the business community is not unduly burdened by unreasonable new compliance obligations that may have a marginal effect on safety. NAA/NMHC will continue to work with our real estate partners through the Real Estate Information Sharing and Analysis Center (ISAC) to coordinate efforts to improve the communications from the Department of Homeland Security (DHS) on threats and warnings as well as policy and planning activities.

PRIVACY AND IDENTITY THEFT

Issue Discussion: Consumer privacy continues to rate high among federal lawmaker's priorities as the number of reported cases of fraud and identity theft increase. High-profile company security breaches have raised questions about whether sensitive consumer information, especially when collected by a data broker, may be falling into the wrong hands, leading to increased identity theft. The Federal Trade Commission (FTC) receives between 15,000 and 20,000 contacts a week from victims of identity theft and consumers who want to learn how to avoid becoming victims. To address this growing problem, Congress is expected to once again introduce a flurry of legislative proposals to ensure consumers have adequate protection of their personal information. Legislation is expected to focus on a couple of key areas, requiring prompt notification of security breaches, providing consumers the option to implement a "Credit Freeze" with their consumer reporting agency, awarding more regulatory power to the federal government and setting minimum security standards for data security. NAA/NMHC support reasonable efforts to safeguard a consumer's personal information. Efforts should be limited to those situations in which there exists a real threat of identity theft so as to not unnecessarily overburden companies with notification obligations in situations that may not warrant such action.

Action Requested: NAA/NMHC encourage Congress to resist enacting overly broad notification requirements and we will work closely with Congress and the federal agencies as various proposals wind their way through the legislative and regulatory process. Efforts directed at breach notification requirements and the management of consumer information remain the primary focus for the apartment industry.

TRANSLATION REQUIREMENTS

Issue Discussion: Executive Order 13166, issued by the White House in 2000, improving access to services by persons with Limited English Proficiency (LEP), requires federal agencies "to prepare a plan to improve access to ... federally conducted programs and activities by eligible LEP persons." HUD subsequently proposed a plan that would require any apartment owner that participates in federal housing programs, including accepting Section 8 vouchers, to translate vital documents, i.e. leases and all types of notices, and offer oral interpretation services free of charge to residents with LEP.

NAA/NMHC do not oppose the objectives outlined in the Executive Order or HUD's attempt to implement that Order except for the provision of services by and at the expense of the apartment owner. While some apartment owners and managers might be fluent in certain languages and dialects other than English, imposing a translation burden on all apartment owners nationwide is costly, unworkable and an unfunded federal mandate. It should not be the responsibility of apartment owners to provide translation and oral interpretation services directly to the LEP population and to assume the responsibility for the associated costs, the accuracy of translated documents and the competency of interpreters. We strongly believe that it is the duty of the government to incur the cost and burden of document translation for persons with LEP and to set up programs that will achieve such guidance.

Action Requested: NAA/NMHC has called on HUD to revise its proposed implementation by recognizing that it is the responsibility of the government to implement a LEP program and we urge Congress to see that HUD does not impose an unfunded federal mandate on apartment owners.

TELECOMMUNICATIONS POLICY

Issue Discussion: NAA/NMHC strongly favor a healthy and competitive telecommunications industry that meets the reliability, technical capability and cost needs of apartment residents. Federal telecommunications policy should be based primarily on a free and open market, without legal restrictions and requirements that impair the management of a multifamily dwelling.

Telecommunications services are in great demand, and today's apartment residents require newer, faster and more sophisticated telecommunications capabilities. Therefore, apartment owners rely on advanced telecom systems and services to satisfy residents' needs and to establish an edge in real estate's highly competitive market place. Those needs can only be met when telecommunications providers compete in a freely operating market. Such competition has spurred the development of new technologies and higher quality service.

New technology such as Fiber to the Premises (FTTP), Voice Over Internet Protocol (VOIP), Wireless (Wi-Fi), and Broadband over Powerlines (BPL) have changed the way that voice, video and data services are provided to multifamily properties. At the same time, the Incumbent Local Exchange Carriers are still responsible for providing Carrier of Last Resort service for land-line phone system hook-up. As a result, some telecom providers are seeking permission at both the state and federal levels to bypass the traditional negotiations for service that must take place between property owners and providers and gain mandatory access to multifamily properties for provision of any or all types of service.

Efforts by either federal or state governments and agencies to mandate physical access to various telecommunications technologies, presumably in the interest of individuals who reside in apartments, more often than not result in higher prices and less competition because the bigger companies will eventually prevail and drive out competition. Also, many apartment communities usually can only support one type of voice, video or data service. If a large provider can threaten to come onto a property to overbuild, then smaller competitors will stay away from that property because of a lack of economic incentive caused by their inability to obtain an exclusive agreement for a limited period of time to recuperate their investment. A misguided effort to increase competition will unfortunately result in less competition and higher costs for residents in many moderate-income apartment communities. In addition, mandatory access leads to forced acceptance of technologies that may soon become obsolete.

Action Requested: NAA/NMHC urge Members of Congress to reject efforts by telecommunications providers who seek legislation that grants them special access privileges to private property.

Percent Distribution of $715 Billion in
Multifamily Mortgage Credit Outstanding in
2006 (as of Third Quarter)

Commercial Banks           21%
Savings Institutions       14%
Life Insurance Companies    6%
Fannie Mae                  5%
Freddie Mac                 6%
Mortgage Securities        33%
  Ginnie Mae                5%
  Fannie Mae               11%
  Freddie Mac               3%
  CABS                     14%
  Individuals and others   15%

Source: Federal Reserve Board

TAX POLICY

Federal tax policy should reflect the economic nature of investments in the financing of real estate and discourage laws causing an outflow of capital from real estate to other investments or distortions in the flow of capital to selective real estate sectors.

ISSUES

FEDERAL ESTATE TAX

Issue Discussion: In 2001, Congress passed legislation to eliminate the estate tax by reducing the tax rate and increasing the size of estates excluded from taxation during 2002 to 2009. Then, for nine months in 2010, the estate tax will be fully repealed. In October 2010, however, the law reverts back to the higher rates and smaller exclusions that were in place in 2001.

In addition to repealing the estate tax, the law also repealed "stepped-up" basis. Stepped-up basis determines whether heirs of depreciable properties pay capital gains taxes based on the fair market value of a property when they inherited it or on the higher accounting basis (the original purchase price less any depreciation taken by the donor).

Because the existing law repeals both the estate tax and the stepped-up basis provision, commercial property owners are better off retaining the estate tax law as it will exist in 2009: (1) assets are stepped up to fair market value at the time of the donor's death; (2) the first $3.5 million of an estate is excluded from taxation; (3) for assets beyond the $3.5 million exclusion, a maximum 45 percent tax rate is applied to the net fair market value (value minus debt); and (4) heirs may re-depreciate the property granted them using fair market value (stepped-up basis). In the alternative, retention and reform of the estate tax with larger exemptions for certain estates, lower rates and preservation of the "step-up" in basis is also preferable for property owners. The House and the Senate appear to be moving toward adopting a compromise reform package containing many of the principles which NAA/NMHC have been advocating for several years.

Action Requested: With 2010 approaching, Congress should act to provide certainty and stability in the federal estate tax laws. NAA/NMHC urge Congress to concentrate on reform--rather than repeal--of the estate tax consistent with the principles articulated above.

EXTENSION OF TAX CUTS

Issue Discussion: In the past several years, Congress has enacted major tax bills that included temporary tax cuts. The 2001 Economic Growth and Tax Relief Act (P.L. 107-16) reduced marginal tax rates, reduced the marriage penalty tax and reduced and scheduled the elimination of the estate tax. The 2003 Jobs and Growth Tax Relief Act (P.L. 108-27) accelerated individual income tax rate reductions and reduced the tax on individual long-term capital gains and dividends to 15 percent. In 2004, Congress extended many of the individual tax cuts through 2010 in the Working Families Tax Relief Act of 2004 (P.L. 108-311). Most recently, in 2006, the 15 percent rate for capital gains and dividend income was extended through 2010 in the Tax Increase Prevention and Reconciliation Act (P.L. 109-222).

Action Requested: NAA/NMHC urge Congress to extend the tax reductions in a manner consistent with economic growth and stability.

ALTERNATIVE MINIMUM TAX/TAX REFORM

Issue Discussion: Although the likelihood of federal tax reform has diminished since the President's Advisory Panel on Tax Reform submitted its recommendations to President Bush in 2005, leading tax writers in Congress remain interested in the subject. The highest congressional tax priority, according to the leadership of the tax-writing committees, will be to provide partial or total relief from the individual alternative minimum tax (AMT). Because it is not indexed to inflation, millions more taxpayers become entrapped each year in the costly and complex AMT. Any form of AMT relief will substantially reduce federal tax revenues. Continuing the annual "patch" that exempts middle-income taxpayers from the AMT is estimated to cost $50 billion for 2007; full repeal will cost over $1 trillion over the next decade. Since Congress will be considering AMT relief (and other tax or spending legislation) against the backdrop of a large federal deficit and reinstituted parliamentary rules that require tax bills to be revenue neutral, it is reasonable to assume--and tax-writers in Congress have indicated--that the need for substantial additional revenues may compel Congress to review and reform the federal tax code, in whole or in part.

Action Requested: NAA/NMHC urge the administration and Congress to undertake tax reform initiatives carefully and to evaluate the practical implications of any changes in the taxation of real estate and rental housing on national housing policies. Congress should refrain from modifying the tax laws to increase the tax burdens on, or otherwise disadvantage, owners and renters of multifamily housing relative to other real estate and other asset classes.

LIKE-KIND EXCHANGES

Issue Discussion: Section 1031 of the Internal Revenue Code allows owners of commercial real estate to exchange properties without setting off a taxable event. Such tax-deferred exchanges enable an orderly flow of property ownership. Congress and the Internal Revenue Service are reviewing several aspects of like-kind exchanges as well as developments in the tenant-in-common market place.

Action Requested: Congress and the IRS should not alter the present like-kind exchange rules. Proposals to revise or restrict like-kind exchanges may have a significantly harmful effect on the value and trading of property.

PRIVATE MORTGAGE INSURANCE

Issue Discussion: For several years, the private mortgage insurance industry has been seeking legislation to allow taxpayers to deduct the cost of private mortgage insurance (PMI). In recent years, NAA/NMHC repeatedly blocked this and other unnecessary homeownership incentives. Unfortunately, Congress recently approved a one-year pilot program for 2007 of an itemized PMI deduction on qualified residences, with phase-out starting at $100,000 adjusted gross income (AGI). If this provision is allowed to grow by extension, allowing new PMI purchasers in ensuing years to deduct the cost of this unnecessary tax giveaway, the eventual cost to the Treasury will be in the billions of dollars.

Action Requested: NAA/NMHC urge Congress to oppose any extension of a tax deduction for PMI as unnecessary, costly and unwise tax policy.

Apartment Construction in 2006 (through November 2006)

Apartments Authorized for Construction                          419,103
  (2 + units in structure: includes units
    for owner occupancy)

  Source: www.census.gov/const/C40/Table2/t2yu200611.txt

Value of Apartments Authorized On thousands):                $41,107,268

Source: www.census.gov/const/C40/Table2/t2yv200611.txt

BUILDING CODES

The nation's model building codes and standards have a significant effect on the cost of housing and, ultimately, on the supply of homes within reach of working families. NAA/NMHC work closely with model code and standard-setting organizations to produce packages that allow apartment developers to build affordable housing without reducing the basic requirements for life safety.

In 2000, the three major building code organizations joined together under the auspices of the International Code Council (ICe) to create a single set of international model codes. Prior to that, each local jurisdiction could choose to adopt one of the three existing model codes, which meant that there was no single standard for construction across the country. With the publication of the first set of ICC codes in 2000, there was finally a single set of codes designed to work together for the entire country. NAA/NMHC strongly support local adoption of the ICC codes over competing codes.

NAA/NMHC have been involved in the code development process for more than 15 years, and through our actions, we have saved more than $4,200 per new apartment unit by keeping out unnecessary and redundant provisions.

ISSUES

ICC MODEL CODES

Issue Discussion: NAA/NMHC support the adoption of the model codes developed and published by ICC over any other set of model codes. Created by the merger of the three model code organizations, ICe has more than 200 years of collective experience in code writing. The ICC model codes, developed with input from code and fire officials and industry, have proved to be a complete, comprehensive and coordinated set of codes that allow the apartment industry to build cost-effective, safe, affordable and accessible housing.

In addition to being the only set of model codes developed and published by a single organization, the 2000 International Building Code (IBC) with the 2001 amendments and the 2003 IBC are the only model codes with the "Safe Harbor" designation for compliance with HUD Fair Housing Act Accessibility Guidelines (FHAAG). The 2006 IBC is now being reviewed by HUD for the "Safe Harbor" designation. In the past several years the IBC codes have become the standard, with adoptions across the country. The NFPA 5000 building code has been adopted by only two small jurisdictions.

Although the NFPA 5000-2006 is somewhat better than prior iterations of NFPA 5000, it too is incomplete, unenforceable and technically unsound. It includes permissive language that does not specifically state basic code requirements, and it includes conflicts that do not clearly differentiate between prescriptive design requirements, performance design requirements and the intent of the code to base requirements on specific occupancy.

Action Requested: NAA/NMHC strongly urge local jurisdictions to adopt the full package of ICe construction codes and to reject the NFPA 5000 code. Although amendments made during the local adoption process may be necessary to respond to specific local conditions, NAA/NMHC discourage all unnecessary local amendments.

NAA/NMHC further urge localities not to "mix and match" codes, such as adopting the ICC's International Building Code (IBC) but then adopting the NFPA Uniform Fire Code (NFPA 1) in lieu of the ICC's International Fire Code. Not only do some of the code provisions contradict each other, but the dual adoption unnecessarily raises construction costs.

NAA/NMHC also urge local jurisdictions not to adopt the NFPA Life Safety Code (NFPA 101) for anything other than medical occupancies because the code has requirements for existing apartments that are not aligned with the requirements in the IBC.

NON-METALLIC SHEATHED CABLE

Issue Discussion: NAA/NMHC strongly support the cost-effective, safe electrical wiring provisions in the 2003 and 2006 ICC codes and the 2002, 2005 and soon to be published 2008 National Electrical Code. We oppose any modifications to those provisions that raise costs without supporting technical justification.

For more than 15 years, NAA/NMHC have advocated widespread use of non-metallic sheathed cable (NM cable; also referred to as Romex) without consideration of building height. Earlier code requirements limited NM wiring to buildings with three or fewer stories, a costly and unjustified restriction.

During the 2001 code development cycle, the ICC removed all height limitations on the use of NM cable from its International Building Code (IBC). In addition, the 2002 National Electrical Code (NEC), published by the NFPA, revised its restriction to allow the NM cable in any building permitted to be of Types III, IV and V construction, allowing apartments up to five stories in height. The 2005 and 2006 NEC retain these changes.

Expanded use of NM cable saves apartment developers $50 million in annual construction costs, without compromising life safety. These savings allow apartment developers to construct new apartments and replace old housing in areas where they previously would not have been able to compete economically.

Action Requested: NAA/NMHC urge local jurisdictions to adopt the 2006 ICC codes and the 2002 and 2005 NEC without any local amendments restricting the use of NM wiring.

ACCESSIBILITY

Issue Discussion: NAA/NMHC support accessible building code provisions that are compatible with the provisions of the Americans with Disabilities Act and the Fair Housing Act. NAA/NMHC support the "Safe Harbor" designation by HUD for the 2000 IBC with the 2001 amendments and the 2003 IBC, and encourage HUD to extend the designation to the 2006 IBC. NAA/NMHC also support the U.S. Architectural & Transportation Barriers Compliance (Access) Board's efforts to align the federal accessibility provisions with those contained in the model codes. We further encourage the Access Board to accept the American National Standard, ANSI A117.1-2003 Standard on Accessible and Usable Buildings and Facilities as the basis for accessibility technical requirements. HUD's acceptance of the ICC/ANSI A117.198 accessibility standard and the 2000 IBC with the 2001 amendments and the 2000 Code Requirements for Housing Accessibility (CRHA) as a safe harbor under HUD's FHAAG is a major step forward in the development of a single set of national accessibility standards. This, however, is only the first step because it is also necessary to secure the U.S. Department of Justice's (DOJ) involvement and determination on the building code provisions designed to be in compliance with the Americans with Disabilities Act Accessibility Guidelines (ADAAG).

NAA/NMHC's direct participation in the development of code provisions meeting the FHAAG provisions and our successful advocacy of mandatory language in the HUD appropriations bill were pivotal in spurring HUD's review of the model codes. NAA/NMHC will continue to work with all parties interested in obtaining DOJ's approval.

Action Requested: NAA/NMHC support the adoption of the accessibility provisions in the 2006 ICC codes.

WORLD TRADE CENTER DISASTER

Issue Discussion: NAA/NMHC support changes to the model codes that address technical issues identified in the National Institute of Standards and Technology's (NIST) investigation of the collapse of the World Trade Center that recognize design changes needed to improve the design of a specific portion of a building. NAA/NMHC oppose any modifications intended to require high-rise buildings to be designed to withstand the impact of a very large fuel-loaded airplane flying into the side of a building.

NIST's Final Report on the Collapse of the World Trade Center Towers, concerning the attack on the World Trade Center Towers on September 11, 2001, included 30 recommendations on items that NIST was concerned about in the design, construction and operation of buildings more than 420 feet in height. Relatively few of these items are things of real concern to the building industry, namely, use of elevators for egress and increased fire protection on structural steel. These items will now be studied by a variety of groups responsible for the development of codes and standards that form the basis for the code provisions that establish the minimum building code requirements. Although there is a lot of work yet to be completed and some of the groups are still working to finalize and update various design options, proposals are coming forward and are being acted on by the model code development organizations.

Action Requested: NAA/NMHC support changes resulting from the detailed work of the committees working to better the national codes to address issues identified during the NIST investigations. NAA/NMHC members also oppose any proposals for changes to requirements at the local level that have not been thoroughly discussed, acted on and approved during the national model code development process.