The Biden administration, in an attempt to increase affordable multifamily housing across the United States, plans to offer more attractive financing for investors, raise Fannie Mae and Freddie Mac’s caps on low-income housing tax credits, and expand the two mortgage giants’ capacity to lend on mobile home properties and two- and four-unit apartments.
As U.S. housing supply constraints have intensified, large investors have stepped up real estate purchases, including single-family homes in urban and suburban areas. One in every six homes purchased in the second quarter of 2021 was bought by investors, and reports indicate that in some markets, that number is 1 in 4, according to the White House.
Large investor purchases of single-family homes speed the transition of neighborhoods from homeownership to rentals, officials said, driving up prices for lower-cost homes and making it harder for aspiring first-time and first-generation homebuyers, among others, to buy a home.
At the same time, these purchases are unlikely to meaningfully boost supply in the lower-cost portions of the rental market, as investors charge more for rent to recoup higher purchase costs, according to the administration. As a result, the plan is designed to help create, preserve and sell to homeowners and nonprofit organizations nearly 100,000 additional affordable homes over the next three years, with an emphasis on the lower and middle segments of the market.
Immediate steps federal agencies are taking include raising Fannie Mae and Freddie Mac’s equity cap for the Long-Term Housing Tax Credit program, the largest federal initiative for the construction and rehabilitation of affordable rental housing. The government-sponsored enterprises are now permitted to invest up to $1 billion per year, or $500 million each, in affordable housing development and preservation supported by the tax credits in the housing program. That is being raised to $1.7 billion, or $850 million each.
Long-term tax credit “investments are one of the most impactful tools we use to create and preserve affordable housing in underserved markets. Increasing the annual cap allows us to better address the affordable housing supply shortage for low- and very low-income families,” Michele Evans, executive vice president and head of multifamily at Fannie Mae, said in a statement.
The announcement Wednesday follows news last week that a group of 111 House Democrats sent a letter to House Speaker Nancy Pelosi, D-California, and House Minority Leader Kevin McCarthy, R-California, asking that the Affordable Housing Credit Improvement Act be included in the $3.5 trillion budget reconciliation legislation being considered by Congress. The measure would increase the amount of tax credit allocation, decrease the 50% test for private activity bond-financed housing, and make other changes to the LIHTC program.
The efforts to expand tax credit financing is prompting consolidation among tax creditor syndicators, according to Matthew Berger, vice president at the National Multifamily Housing Council, in an email to CoStar News.
At the end of last year, Boston Financial Investment Management acquired Boston Capital’s tax credit business, making it the largest such syndicator with $15 billion in equity under management and overseeing more than 2,300 underlying assets and 190 funds that make use of the tax credit program.
This week, Walker & Dunlop, a Bethesda, Maryland-based commercial finance shop, agreed to acquire Alliant Capital for $696 million. Alliant, based in Woodland Hills, California, is an alternative investment manager that focuses on affordable housing through tax credit program syndication, joint venture development, and community preservation fund management. The purchase would add $14 billion of affordable housing assets under management to Walker & Dunlop’s $2 billion of assets under management.
Federal agencies also plan to:
- Provide low-cost Ginnie Mae-comparable financing rates to state financing agencies that finance affordable housing development, enabling the development of new affordable housing.
- Make more funding available to Community Development Finance Institutions and nonprofit housing groups for affordable housing production under the Capital Magnet Fund.
- Boost the supply of mobile homes and two- and four-unit properties by expanding financing through Freddie Mac. Along with Fannie Mae and the Federal Housing Administration’s existing policies, these steps will enable more Americans to purchase homes and increase the availability of rental units throughout the country.
- Make more single-family homes available to individuals, families and nonprofit organizations — rather than large investors — by prioritizing homeownership and limiting the sale to large investors of certain FHA-insured and Department of Housing and Urban Development-owned properties.
- Work with state and local governments to boost the housing supply by leveraging existing federal funds to spur local action, exploring federal options to help states and local governments reduce exclusionary zoning, and launching learning and listening sessions with local leaders.
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