Amid the deepening affordability crisis across the U.S., President Joe Biden has unveiled an initiative aimed at closing the housing gap within the next five years. The plan includes legislative and administrative actions to boost the housing supply by creating and preserving affordable housing, launching new financing programs, and encouraging land-use reforms.
The new plan builds on the administration’s Build Back Better Agenda announced last September, which included plans to construct and rehabilitate 100,000 homes during the next three years. However, burdensome and outdated regulations and a lack of attractive funding options — alongside skyrocketing development costs — have made the construction of new affordable housing lengthy and expensive. The new, five-year plan aims to eliminate some of the roadblocks to building affordable homes by focusing on several key areas.
Zoning, Land-Use Regulations
One major aspect of the new initiative is to encourage housing developments by incentivizing reformed zoning and land-use regulations. Some of these reforms include eliminating minimum-lot-size regulations, parking requirements, or prohibitions on multifamily housing.
New Financing Programs
One of the most significant aspects of the plan for affordable housing investors and developers includes a host of new financing vehicles. While many of the planned funding changes are targeted at smaller, two- to four-unit properties, accessory dwelling units, and other smaller multifamily assets, there is an increased focus on manufactured housing. The latter mechanisms importantly include chattel loans, which most buyers in the sector depend upon.
Improvements to Existing Federal Financing
Some significant reforms to Low-Income Housing Tax Credits and HOME Investment Partnership Program grants are on the way. Further, the administration also plans to investigate leveraging Fannie Mae® to purchase construction-to-permanent loans, geared toward lowering interest rate risk and transaction costs. Finally, the government will also encourage the use of unutilized COVID-19 federal recovery funds to boost affordable housing at state and local levels.
Targeting Smaller Owners
The administration will also shift disposition focus toward individual homeowners and "mission-driven entities" instead of large, institutional investors. Part of this involves delaying when large investors are able to bid for REO assets. Now, owner-occupants and nonprofits have a 30 day window of exclusivity to bid on these properties before they become available to major investment companies.
Address Supply Chain Issues
A final component involves engaging the private sector to resolve ongoing supply chain issues driving shortages — and costs — of building materials. This will be in addition to actions already taken, like the reduction in lumber tariffs and funding for forestry management practices.
Why Now?
While the affordable housing crisis has been worsening for years, the pandemic further increased the gap between supply and demand. According to the National Low Income Housing Coalition, there’s no state with an adequate supply of affordable rental housing for low-income renters.
There is a shortage of roughly 7 million rental homes available to extremely low-income renters, those defined by HUD as earning 30% of area median income, the organization’s yearly report on affordable rental homes revealed. The study also found that only 36 affordable and available rental units exist for every 100 extremely low-income renters.