In stand-up comedy, timing is everything. Bringing an issue before Congress works much the same way. If you present your stance on an issue too early, lawmakers and their legislative assistants will look at you with confusion evident on their faces. If you present your views on an issue after they’ve already addressed it, you fail to engage them in a meaningful conversation. However, if you present a problem just as they are beginning to hear it from other sources as well, you can hook them just the way a good one-liner can.

Fortunately, this year our timing on Capitol Hill could not have been more perfect. During the week leading up to the 11^th Annual SBC Legislative Conference in Washington, DC, participants asked their U.S. Representatives via email to consider becoming original cosponsors of a bill aimed at addressing the lending crisis currently facing the residential construction industry. A lawmaker can only be considered an original cosponsor if they agree to sign on to the bill before it is introduced.

That work paid off. When Representatives Gary Miller (R-CA) and Brad Miller (D-NC) introduced the Home Construction Lending Regulatory Improvement Act of 2011 (H.R. 1755) a week later (on the day component manufacturers and suppliers hit the Hill) they had 32 original cosponsors. Five of them were lawmakers contacted by the manufacturers and suppliers who attended the conference.

Talking to lawmakers the day the bill was introduced was also very beneficial. It allowed us to help the bill’s sponsors hit the ground running and begin building support immediately. Combined with the strong bipartisanship support of the original cosponsors (20 Republicans, 12 Democrats), our industry’s efforts should help get this important legislation on the calendar more quickly for a committee hearing.

Both of the Millers came to speak to conference participants the night before our industry’s visits to the Hill, and shared their views on why this legislation is so important, and what our industry can do to help support its passage. Encouraging cosponsorship of the bill is a good first step, but much more work will need to be done over the summer months to grow support among members of the U.S. House. Look for ongoing updates on this legislation as it progresses through the legislative process and consider getting involved!

Another great way to build support for this issue, and others important to your business, is to invite your U.S. Representative to come and take a tour of your manufacturing facility when they are back home. Having your lawmaker as a captive audience in their district is one of the most effective ways to build a relationship with them.

Read on to find out more about the issues component manufacturers brought to Capitol Hill this year and what they mean to you and your business.  

2011 Talking Points

Housing Finance

SBC Industry Position:

The structural building components industry manufactures many products used in residential construction, and as a result plays an important role in the promotion of home ownership and the growth of affordable housing. We urge Congress to address lending barriers currently hampering the growth of the residential and light commercial construction industry.

Residential & Light-Commercial Production Lending:

This was the premier issue component manufacturers took to Capitol Hill this year. Few would argue that the lack of availability and access to land acquisition, land development and home construction loans, known as AD&C loans, is the single biggest challenge facing the residential and light-commercial construction industries.

If you’re reading this, it’s likely you know of small- and medium-sized residential and light-commercial builders in your marketplace that are finding it very difficult to obtain credit for viable construction projects. While Federal bank regulators maintain that they are not encouraging institutions to stop making loans, the lenders themselves are citing regulatory requirements or bank examiner pressure to shrink their AD&C loan portfolios as reasons for their restrictive actions.

Fortunately, there appears to be a solution that may begin to address this problem. The day members took to Capitol Hill to talking with their lawmakers, Representatives Gary Miller (R-CA) and Brad Miller (D-NC) introduced the Home Construction Lending Regulatory Improvement Act of 2011 (H.R. 1755). This bill directs the banking regulators to issue new guidance in three key areas:

• Cease implementing a 100 percent capital bank lending limit for AD&C loans as a “hard” limit, and utilize the 100 percent of capital guideline as it was intended;

• Use “as-completed” values when assessing the collateral of residential AD&C loans they intend to fund to completion and use “arms-length transactions” standards when assessing new loans;

• Abstain from compelling a lender to call or curtail AD&C loans where the home builder is current in making payments in accordance with the loan documents.

Government-Sponsored Enterprises:

While building support for this important piece of legislation, component manufacturers and industry suppliers argued that the federal government should continue to provide support to the housing finance system through government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac and the Federal Home Loan Bank System, to ensure the flow of housing credit remains reliable and affordable.

While these institutions may have contributed to the questionable lending spree that exacerbated the housing bubble and eventual collapse, they argued Fannie Mae and Freddie Mac should not be converted to government agencies, nor should their functions be completely turned over to the private market. Their quasi-governmental status provides significant benefits, as well as security, that should be maintained.

Bottom line to Component Manufacturers:

Unless the lending process becomes less bureaucratic, and more readily available to home builders, it is likely our industry’s struggles will continue. Contact your lawmakers today and encourage them to support the Home Construction Lending Regulatory Improvement Act of 2011.

Tax Policy

SBC Industry Position:

The residential construction industry, of which we are an integral part, in still struggling to recover. As Congress discusses ways to increase efficiency in the tax code, it is vital Congress avoids increasing taxes on homeowners. Doing so would further hamper the construction industry recovery and have a detrimental impact on long-term economic growth.

Mortgage Interest & Real Estate Tax Deduction:

Most of the lawmakers our industry visited indicated Congress is consumed primarily with the task of addressing the federal budget deficit. Within this debate, it appears there are no “sacred cows,” meaning any federal expenditure or revenue stream was potentially a target for change. With that in mind, component manufacturers pointed out that the residential and light-commercial construction industry accounts for roughly 20 percent of the nation’s gross domestic product (GDP). It follows that hindering growth in this sector will have detrimental effects on the rest of the economy.

Within the budget battle, our industry argued that the mortgage interest deduction, and the business deduction for interest expense that investors in rental housing claim, are cornerstones of our nation’s housing policy. Including the ability of homeowners to deduct local real estate taxes paid, these tax policies provide significant financial incentives that encourage home ownership.

These deductions are primarily beneficial to the middle-class. Almost 70 percent of the benefits of the mortgage interest deduction, and 77 percent of the real estate tax benefits, are claimed by those earning less than $200,000. As a share of household income, these deductions have the greatest benefit for those aged 18 to 35, as well as for larger families. Component manufacturers made a strong case that eliminating or changing these tax policies would have an immediate, negative impact on housing prices and raise the after-cost debt burden for homeowners.

Low Income Housing Tax Credit (LIHTC):

In addition to personal tax deductions, our industry argued that certain corporate tax credits are also important. One of the most effective tax code measures to promote rental housing is the LIHTC. Created in 1986, it has encouraged private-public partnerships to build affordable rental housing.

According to 2009 data from the U.S. Census Bureau, 40 percent of total renters are paying at least 35 percent of their household income toward rent. By most Federal housing program standards, these households are considered rent burdened. Obtained through state housing agencies, LIHTCs provide a pathway to raise private equity at a lower cost, which make it possible to offer below-market rent.

Few federal lawmakers could argue with the outcomes of this program. The LIHTC added approximately $6.8 billion in income and created 90,000 new full time jobs per year across all U.S. industries—generating $2 billion in federal tax revenue. The LIHTC is currently producing approximately 75,000 new apartment homes annually, and since its inception, the LIHTC has produced more than 2 million affordable rental units. No other workforce housing program has been as successful as the LIHTC in producing safe, quality, affordable rental housing.

Bottom line to Component Manufacturers:

The tax policies discussed above are important to preserve the affordability of home ownership in this country. While it is important for the government to take control of budgetary spending, significantly altering these policies will enact a tax increase on all homeowners and have an overall negative impact on the economy.

Immigration Reform

SBC Industry Position:

As the housing industry recovers, we expect that the structural building components industry will need to begin hiring employees to meet the growing demand. Our industry has significant concerns with regard to protecting employers from unfair hiring burdens due to an unworkable immigration system.

Immigration System Broken:

Although you don’t hear as much about it in the national media, illegal immigration is still a significant problem. In 2009, roughly 29 percent of immigrants residing in the United States were here illegally. Further, the Pew Hispanic Center estimates a net increase of 700,000 illegal immigrants annually. As component manufacturers visited with their lawmakers, they stressed the point that the availability of forged citizenship documents makes illegal immigration a more significant problem for employers because it is very difficult to determine who is eligible for legal employment.

Reform Needed Now:

As the economy continues to improve, the issues surrounding immigration will again become pronounced. That is why our industry argued strongly on Capitol Hill that now is the time to address the broken immigration system. Reforms enacted today will have a lesser impact due to the smaller population of immigrants currently residing or applying for residence compared to the first half of the last decade.

Within that reform, component manufacturers argued Congress needs to provide tools for employers that are easy to use to ensure compliance with the law, and shield employers who use the system from liability if they have done all they can to comply. Employers should not be expected to act as agents on behalf of immigration services. Further, manufacturer’s argued that Congress should provide additional pathways to legal immigration, which will further increase home purchases and related sales, and provide for further economic expansion, all while ensuring U.S. employers can meet ongoing employment demands.

Bottom line to Component Manufacturers:

Our nation’s immigration system is broken, and as the nation’s economy improves, these flaws will create significant problems once again. It is important for Congress to realize that new immigrant populations represent more labor available for the jobs our country needs to fill, a greater need for housing to be built and additional taxes collected to help our governmental solvency issues. In short, Congress should adopt comprehensive reforms that fix immigration positively, and look out for the best interests of all involved.

Trade Policy

SBC Industry Position:

An unfortunate aspect of current U.S. trade policy is that countervailing and anti-dumping duties have been imposed with no consideration of the adverse impact on us as buyers, or on the overall housing market. Further, future restrictive trade policies may put U.S. consumers at a significant competitive disadvantage versus overseas markets.

Canadian Softwood Lumber:

The dispute between the U.S. and Canada over importation of softwood lumber has been going on for over 100 years, and it’s not going to go away any time soon. The problem stems from the fact U.S. softwood lumber producers alone cannot meet domestic demand. Currently, Canadian softwood lumber imports account for 30 percent of construction lumber used in the U.S. However, the Canadian provincial governments have provided financial subsidization of their forestry industry, much like our own government supports farmers.

As a consequence, the current seven-year agreement between the two countries has been punctuated by three petitions for arbitration. One case was resolved in favor of the U.S., one case is pending, and a third was recently filed by the U.S. Trade Representative’s Office. It is clear that if a lasting solution is not found, protectionist U.S. trade policies will be put in place and will have a negative impact on our industry.

International Competition:

To further complicate matters, off-shore markets threated to provide stiff competition for Canadian lumber. At its peak, a large portion of Canadian softwood lumber exports were to the United States (38 percent), primarily for use in residential construction. The collapse of the U.S. housing market led to significant declines in overall Canadian softwood lumber exports.

However, that overall decline was mitigated by a significant increase in exports to China. For example, from 2008 to 2009, Canadian softwood lumber exports increased 78 percent. From 2006 to 2010, the value of British Columbian softwood lumber exports to China increased ten-fold, from $65 million to $668 million. The threat of future restrictive U.S. trade policies is encouraging Canadian provinces to seek out other offshore markets, shifting the supply demand equation for the US market in material ways.

That is why component manufactures went to Congress asking for their help. Only a long-term solution will allow U.S. companies the ability to compete in their marketplaces on a fair and equitable basis, and ensure they have an adequate and fairly-priced source of raw material.

Bottom line to Component Manufacturers:

With the threat of protectionist U.S. trade policies around the corner, combined with a soft residential construction market, Canada has begun looking to China and other off-shore markets to sell its timber. Unless the U.S. seeks a long term solution to this trade dispute, domestic consumers like us will likely once again suffer the consequences of unpredictable supply and the resultant lumber price fluctuations. Lumber supply could be one of the bigger issues our industry faces in the next five years.