Federal Agencies Take New Steps to Boost Affordable Housing

Freddie Mac is now authorized to provide an additional $3 billion in forward commitment financing. Image courtesy of Freddie Mac

In actions intended to accelerate the creation of affordable housing, federal agencies detailed actions on Friday intended to expand financing and add flexibility. The steps were announced by the White House on Friday as part of an update on the Housing Supply Action Plan.

The Treasury Department and Internal Revenue Service have finalized a regulation that changes the criteria for LIHTC qualification. Rather than a single income limitation for rent-restricted units, the new rule allows properties to qualify on the basis of average income for all units, according to the White House’s statement.

The rule is intended to create more stable, mixed-income communities. By permitting cross-subsidization of projects, more housing can be created for extremely low-income residents, the agencies say. Development of affordable properties in rural areas is also expected to be encouraged by the new rule.

IRS also moved to add flexibility to schedules for bringing affordable housing online. The agency had previously extended deadlines for projects that were delayed by the pandemic. Those deadlines have now been further extended to provide leeway for LIHTC-eligible projects affected by supply chain issues and economic pressures as well as by public health challenges.

The provisions drew favorable reviews from affordable housing sponsors. In a statement, Enterprise Community Partners Capital Division President Lori Chatman praised the modification and called the tax credit the most important tool in expanding the nation’s affordable housing stock. She also called for Congress to further strengthen the credit.

And the Affordable Housing Tax Credit Coalition predicted that the income averaging rule and deadline extensions would advance affordable housing development despite skyrocketing rents.

Financing flexibility

Another key move by the government-sponsored enterprises is aimed at providing affordable housing developers with more financing flexibility. The Federal Housing Finance Agency (FHFA) is expanding the GSEs’ Forward Commitment program, which enables sponsors to secure financing to pay off construction loans for completed projects. It also provides stakeholders with certainty by locking in certain terms for loans that the GSEs will purchase in the future. Fannie Mae and Freddie Mac are now each authorized to provide $3 billion in Forward Commitment funding beyond their $78 billion annual caps.

Steve Johnson, Freddie Mac’s vice president of production and sales, noted in a statement that the step is intended to ease uncertainty for stakeholders and facilitate development. In a related move, FHFA is lifting Freddie Mac’s $500 million cap on forward commitments for non-LIHTC projects. The Freddie Mac’s annual $3 billion exemption on forward commitments will apply to non-LIHTC as well as LIHTC projects.

In a joint statement, the National Multifamily Housing Council and National Apartment Association said that they applauded the GSE financing reforms, LIHTC rule changes and other steps. The agencies added that they expect the steps to have a positive impact on the industry and residents.

Transit-oriented affordable housing projects and other development also received a boost last week with the expansion of a U.S. Transportation Department financing initiative. Under TIFIA 49, announced Oct. 4 as a new provision of the Transportation Infrastructure Finance and Innovation Act, project sponsors may now borrow as much as 49 percent of eligible project costs, up from 33 percent. Eligible projects will include residential and commercial development that involves improving transit facilities and that have costs shared between private sponsors and public agencies.