Earlier this year, President Biden released a Housing Supply Action Plan detailing the legislative and administrative steps the administration will take to tackle the housing crisis across the U.S. within the next five years. The plan targets the creation and rehabilitation of 100,000 homes during the next three years, supports the launch of new financing programs, and encourages zoning and land-use reforms to eliminate the roadblocks to building new housing.
As part of this plan, the U.S. Department of the Treasury has just unveiled new guidance on how state, local, and tribal governments can use American Rescue Plan funds to increase the affordable housing supply in their communities.
A portion of the $350 billion available under the State and Local Fiscal Recovery Funds (SLFRF) was already accessible to local governments to construct, rehabilitate and operate low-income housing units in their communities and more than 600 state and local governments used this fund through March 31, 2022, the Treasury noted. These governments had allocated $12.9 billion in SLFRF funds to meet housing needs and reduce housing-related costs. This amount also includes $4.9 billion dedicated to developing and preserving affordable housing units.
How New SLFRF Policies Can Increase the U.S. Affordable Housing Supply
The new initiative plans to enhance the SLFRF program through two key steps: First, by providing flexibility to fully finance long-term affordable housing loans, and secondly, by expanding presumptively eligible affordable housing uses.
Funding affordable housing projects often proves to be difficult, due to the lack of available financing options. The SLFRF program attempts to mitigate this problem by allowing this financing to be combined with other federal, state, local, and private resources, the guide details. For example, a project eligible for Low Income Housing Credit can still benefit from SLFRF funds.
While SLFRF funds used for affordable housing used to be presumptively eligible if the project met the key requirements of two major HUD programs, the new guidance expands the presumptively eligible uses to include more federal housing programs, including the National Housing Trust Fund, Public Housing Capital Fund, and the Multifamily Preservation & Revitalization Program, among others.
“These changes are intended to build on Treasury’s efforts to facilitate the use of SLFRF to leverage other sources of federal funding for affordable housing,” the release mentioned.
Additionally, the Treasury highlighted that SLFRF funds can be used to finance the construction, rehabilitation, or operation of any affordable housing unit that provides at least 20 years of affordability and serve households earning at or below 65% of the local area median income.
The Need for Housing Continues to Pressure the U.S.
Although there are significant steps taken toward alleviating the housing crisis, as the effects of the pandemic and economic uncertainties continue to burden the U.S., the need for housing and especially affordable housing continues to grow across the country.
According to a new study released by the National Multifamily Housing Council (NMHC) and the National Housing Association (NAA), the U.S. needs to build 4.3 million new apartments by 2035 to mitigate the housing shortage and meet future demand.
The study also found that there’s currently a shortage of 600,000 apartment homes, while the number of affordable units (with rents below $1000 per month) declined by 4.7 million within just five years, from 2015 to 2020.
Demand for housing is driven by domestic migration and immigration. Although the pandemic has lowered immigration to the U.S., a reversal of this trend could significantly boost the need for rental housing in the future. The study predicts that around 40% of future demand will be driven by Texas, Florida, and California. These three states will require a combined 1.5 million new apartments by 2035.