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Affordable housing will increase over the next three years as the Biden government announced on Wednesday a plan to build and maintain 100,000 homes for low-income tenants and home buyers.
The plan that coincides with others state financial injections into the housing market, is intended to counteract the lack of affordable housing, as the supply is limited and the prices for available housing have been driven up by competition. President Joseph Biden also has a larger affordable housing agenda worth $ 318 billion in the American Jobs Plan, which must be approved by Congress.
The latest initiative includes increasing the supply of prefabricated and multi-family homes and helping nonprofits and individual buyers gain access to single-family homes rather than large investors.
Large investors have been blamed in part for the lack of affordable housing as they have bought and rented single-family homes in the past limited homebuyer offer and driving prices.
“One in six homes bought in the second quarter of 2021 was by investors, and reports suggest that number is one in four in some markets,” the White House statement said. “In the case of investor purchases, more than 35% of the purchases are usually made by investors who own more than 10 properties.”
Knowing that supply was limited, sellers could set costly terms on the sale, such as:
But investors are only part of the Dilemma. Prohibited zoning laws, expensive materials, labor shortages and the Covid-19 pandemic have all contributed to the fact that construction does not keep pace with housing demand.
According to the S&P CoreLogic Case-Shiller Home Price Index, an aggregate of real estate price trends in 20 US metropolitan areas, home prices shot up by a record 19.1% in the past year. This has made it increasingly difficult for first-time buyers and those on budget to gain access to home ownership.
How the White House will implement its plan
The Biden government plans to expand the supply of affordable housing through a variety of programs from multiple agencies, including the Treasury Department, the U.S. Department of Housing and Urban Development (HUD), and the State Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac.
Here are some key parts of the plan for the next three years:
Raising low-cost capital for affordable residential developments
Rebooted a 2019 suspended program that provided government housing finance agencies (HFAs) with low-cost capital to fund the development of affordable housing. The program is a joint effort between the Treasury Department’s Federal Financing Bank and the HUD’s Department of Risk Sharing Program.
Start of construction and renovation of rental apartments
Fannie Mae and Freddie Mac are now allowed to invest up to $ 1.7 billion per year ($ 850 million each) in Low-Income Housing Tax Credit (LIHTC), the country’s largest federal program for construction and redevelopment affordable rental housing through tax breaks. The equity increase announced by the Federal Housing Finance Agency (FHFA) as part of Biden’s initiative was previously capped at $ 1 billion per year ($ 500 million each).
$ 5 billion increase for nonprofits
As part of a larger effort to create affordable housing, the Treasury Department announced Wednesday that it has given $ 5 billion in new market tax credits to 100 community development agencies (CDEs) to help fuel economic growth in low-income and rural communities in 34 states promote and the District of Columbia.
The tax credit is financed by the CDFI (Community Development Financial Institutions) fund of the Ministry of Finance.
“Many of the communities that will receive this funding have faced economic challenges for many decades,” Treasury Secretary Janet Yellen said in a statement. “Challenges made more difficult by a lack of investment. It is critical that Congress sustain these investments over time by making the New Markets Tax Credit Program permanent. “
Limit FHA and HUD home purchases by investors
Investors can be fierce competitors in today’s hot housing market, so the White House plans to give eligible individuals a head start by limiting how many homes will be sold to major investors who are either insured by the Federal Housing Administration (FHA) . or owned by HUD.
The plan also provides for the creation and expansion of the time frames during which only government agencies, owner-occupiers, and eligible nonprofits can bid on certain FHA-insured and government properties.
The White House plan is a patch, not a solution to housing supply problems
While more affordable housing is helpful for both tenants and buyers, the White House’s goal of 100,000 homes falls short.
For example, according to the National Low Income Housing Coalition, there is a lack of around 6.8 million rental homes that are affordable and available to tenants with incomes below or below the Poverty Directive, or 30% of their median income in the region.
Still, most housing experts and trade groups say this is a step in the right direction in hopes of encouraging others to make greater efforts to repair the housing market.
“Administratively, the HUD and FHFA should do what they can while Congress considers major initiatives,” said Bob Broeksmit, President and CEO of the Mortgage Bankers Association.