Affordable Housing Financing Could Loosen Up, As Biden Administration Acts ‘Where It Can’

In what it called “key progress” in implementing the sweeping five-year Housing Supply Plan unveiled in May, the Biden administration late last week announced a suite of policy changes addressing the nation’s critical shortage of affordable housing amid rising inflation, a continuing public health crisis and supply chain wrinkles that have choked production of new units.

Two of the steps unveiled in an Oct. 7 White House release are aimed at making it easier and faster to build projects using Low-Income Housing Tax Credits, the federal government’s largest incentive for affordable housing and construction.

The administration is finalizing regulations that would reform income guidelines for LIHTCs, allowing projects to qualify based on an average of income limitations across rent-restricted units, instead of requiring a single income limitation for each unit. The White House said the proposal would allow creation of more financially stable, mixed-income LIHTC projects and make it easier to build them in sparsely populated rural communities.

The Biden administration is also calling for extending LIHTC deadlines so affordable housing projects put on hold by public health, supply chain and economic issues can be built “as expeditiously as possible” without losing qualification for the incentive.

The administration also said it is reforming the Forward Commitment financing program at Fannie Mae and Freddie Mac by allowing more developers to secure financing to pay off construction loans after projects are completed and approved for occupancy. 

In addition, it has begun giving localities more flexibility to use American Rescue Plan funds doled out to states and municipalities for affordable housing projects. In July, the Treasury Department expanded eligible uses for State and Local Fiscal Recovery Funds, allowing cities, counties and states to make long-term loans to finance certain projects, including projects expected to be eligible for LIHTCs. 

That revised ARP guidance has already been used in places like Hanover County, North Carolina, which used it to finance long-term loans that allowed the stalled 278-unit Stairway Village multifamily project to proceed, White House officials said in the release.

The White House announcement drew swift kudos Friday from industry groups and affordable housing builders, coming as research shows the nation must produce 4.3 million more apartments by 2035 to keep up with demand and address the undersupply in the aftermath of the 2008 financial crisis.

Meanwhile, the number of affordable units across the U.S. dropped by 4.7 million from 2015 to 2020, a situation made all the more dire over the past two years in light of financial insecurity and sharply spiking rents.

“The Biden administration’s plan is a step in the right direction as we seek to address the growing demand for additional housing supply to ensure that all Americans can find a safe and affordable home,” the National Multifamily Housing Council and the National Apartment Association said in a joint statement.

“We have long supported providing flexibility for the use of State and Local Relief Funds to finance long-term affordable housing loans. We are also pleased to see that [the U.S. Department of Housing and Urban Development] and Treasury are publishing joint guidelines to help governments easily combine ARP funds with other federal funding sources.”

Enterprise Community Partners, one of the nation’s largest affordable housing nonprofits, called strengthening LIHTC the most important lever government could pull to build and preserve more affordable housing.

“These steps couldn’t come at a more crucial time, as millions are feeling the strains of rising housing costs, even with a slowdown in inflation," Enterprise’s Capital Division President Lori Chatman said in a release. “Now the ball is in Congress’ court.”

Biden officials said the administration had “acted where it can to directly address affordability,” but some elements of the broader plan will require congressional approval, including the Unlocking Possibilities Program to establish a new $1.75B grant program through HUD and a 2023 budget request for $10B in HUD grants to increase accessibility to affordable housing.

“The rising costs of housing, including extraordinary rent increases for many tenants, make it more challenging for Americans to afford other essentials like food, transportation, and health care,” the White House said in the Oct. 7 statement. “To close the supply gap and expand housing affordability, the Administration continues to urge Congress to act on a bipartisan basis to support the construction and preservation of affordable housing this year.” 

Other steps outlined in last week’s progress report include:

— Relaunching the Federal Financing Bank’s Risk Sharing program, which provides loans at reduced rates to state and local housing finance agencies to create and preserve high-quality, affordable homes.

— Promoting more housing options near transit and other modes of transportation, and rewarding jurisdictions that have removed barriers to such housing development.

— Encouraging housing innovation and alternative housing types that will lower costs and boost affordable housing production.