Testing this now if anyone else wants to eyeball it:

diff --git a/redhat-release-atomic-host.spec b/redhat-release-atomic-host.spec
index 21cd874..effbd7e 100644
--- a/redhat-release-atomic-host.spec
+++ b/redhat-release-atomic-host.spec
@@ -5,7 +5,7 @@
 %define variant_titlecase Atomic Host
 %define variant_titlecase_concat AtomicHost
 %define variant_lowercase atomic-host
-%define release_pkg_version 20160824.0
+%define release_pkg_version 20161129.0
 %define base_release_version 7
 %define full_release_version 7.3
 %define dist_release_version 7
@@ -14,7 +14,7 @@
 
 Name:           redhat-release-atomic-host
 Version:        %{full_release_version}
-Release:        %{release_pkg_version}.atomic%{?dist}.3
+Release:        %{release_pkg_version}.atomic%{?dist}.4
 Summary:        %{product_family}%{?variant_titlecase: %{variant_titlecase}} release file
 Group:          System Environment/Base
 License:        GPLv2
@@ -42,17 +42,19 @@ rm -rf %{buildroot}
 
 # create /etc
 mkdir -p %{buildroot}/etc
+mkdir -p %{buildroot}/usr/lib/
 
 mkdir -p %{buildroot}/etc/pki/product
 cp %{SOURCE3} %{buildroot}/etc/pki/product/271.pem
 cp %{SOURCE4} %{buildroot}/etc/pki/product/69.pem
 
 # create /etc/system-release and /etc/redhat-release
-echo "%{product_family}%{?variant_titlecase: %{variant_titlecase}} release %{full_release_version}%{?beta: %{beta}}" > %{buildroot}/etc/redhat-release
-ln -s redhat-release %{buildroot}/etc/system-release
+echo "%{product_family}%{?variant_titlecase: %{variant_titlecase}} release %{full_release_version}%{?beta: %{beta}}" > %{buildroot}/usr/lib/redhat-release
+ln -s ../usr/lib/redhat-release %{buildroot}/etc/system-release
+ln -s ../usr/lib/redhat-release %{buildroot}/etc/redhat-release
 
 # create /etc/os-release
-cat << EOF >>%{buildroot}/etc/os-release
+cat << EOF >>%{buildroot}/usr/lib/os-release
 NAME="%{product_family}%{?variant_titlecase: %{variant_titlecase}}"
 VERSION="%{full_release_version}"
 ID="rhel"
@@ -71,8 +73,10 @@ REDHAT_BUGZILLA_PRODUCT_VERSION=%{full_release_version}
 REDHAT_SUPPORT_PRODUCT="%{product_family}"
 REDHAT_SUPPORT_PRODUCT_VERSION=%{full_release_version}
 EOF
+ln -s ../usr/lib/os-release %{buildroot}/etc/os-release
 # write cpe to /etc/system/release-cpe
-echo "cpe:/o:redhat:enterprise_linux:%{full_release_version}:%{?beta:beta}%{!?beta:GA}%{?variant_lowercase::%{variant_lowercase}}" | tr [A-Z] [a-z] > %{buildroot}/etc/system-release-cpe
+echo "cpe:/o:redhat:enterprise_linux:%{full_release_version}:%{?beta:beta}%{!?beta:GA}%{?variant_lowercase::%{variant_lowercase}}" | tr [A-Z] [a-z] > %{buildroot}/usr/lib/system-release-cpe
+ln -s ../usr/lib/system-release-cpe %{buildroot}/etc/system-release-cpe
 
 # create /etc/issue and /etc/issue.net
 echo '\S' > %{buildroot}/etc/issue
@@ -137,6 +141,9 @@ rm -rf %{buildroot}
 %defattr(0644,root,root,0755)
 /etc/redhat-release
 /etc/system-release
+%{_prefix}/lib/os-release
+%{_prefix}/lib/redhat-release
+%{_prefix}/lib/system-release-cpe
 %config(noreplace) /etc/os-release
 %config /etc/system-release-cpe
 %config(noreplace) /etc/issue
@@ -156,6 +163,11 @@ rm -rf %{buildroot}
 %dir /etc/cockpit/ws-certs.d
 
 %changelog
+* Tue Nov 29 2016 walters - 7.3-20161129.0.atomic.el7.4
+- Switch to /usr/lib/os-release to work around
+  https://github.com/rpm-software-management/libhif/pull/215
+  Resolves: #1399770
+
 * Wed Aug 24 2016 Colin Walters <walters>
 - Update version, add VARIANT/VARIANT_ID; see
   https://github.com/CentOS/sig-atomic-buildscripts/issues/61

(In reply to Colin Walters from comment #2)
> Testing this now if anyone else wants to eyeball it:

My eyeballs say LGTM

https://brewweb.engineering.redhat.com/brew/taskinfo?taskID=12167186

I tried to 'ostree admin unlock && rpm -Uhv' the new 'redhat-release-atomic-host' package to verify the fix, but that didn't seem to work.

However, after making a custom compose with the new package and rebasing to it I was able to successfully 'rpm-ostree install' a package again.

Since the problem described in this bug report should be
resolved in a recent advisory, it has been closed with a
resolution of ERRATA.

For information on the advisory, and where to find the updated
files, follow the link below.

If the solution does not work for you, open a new bug report.

https://access.redhat.com/errata/RHBA-2016:2864