White House Reports Its Progress on Housing Supply Action Plan

The White House is putting its money where its mouth is when it comes to creating greater housing affordability.

Marcus & Millichap and industry groups laid out how it is incentivizing the construction of lower-income housing in various forms – the primary goal of the Housing Supply Action Plan.

Updated for October, for example, its proposed income averaging provision for the Low-Income Housing Tax Credit would make development more feasible in sparsely populated areas, by no longer requiring all tenants to meet the same income threshold.

This change joins a series of other alterations and additions, designed to ease the regulatory and financial hurdles of building income-restricted dwellings.

Addressing housing affordability is becoming a priority for the Biden administration, after steep home price run-ups directed excess demand to apartments and drove up rental costs.

Final Guidance for LIHTC Released

National Apartment Association (NAA) reported that the Department of Treasury and the Internal Revenue Service (IRS) released final and temporary regulations to amend the LIHTC income averaging rule (final rule).

The LIHTC program is the largest federal incentive for creating affordable housing. The recently released final and temporary regulations set forth guidance on the average income test for LIHTCs.

Among the details, NAA reported “The Code provided for two minimum set-aside tests that a taxpayer could elect: the 20-50 test and the 40-60 test. For example, 20% of the units were rent-restricted to residents making no more than 50% of the area gross median income (AMGI).

“The Consolidated Appropriations Act of 2018 (the Act) introduced the concept of income averaging to allow certain units and residents to exceed the set-aside tests.  The Act permitted a project to be eligible for LIHTC if “at least 40% of the residential units in the project are both rent-restricted and occupied by tenants whose income does not exceed the imputed income limitation designated by the taxpayer with respect to the respective unit.”

Additionally, the IRS issued IRS Notice 2022-52, which extended certain deadlines for LIHTC projects. In response to labor and supply-chain disruptions, the notice extended deadlines for when an affordable housing project seeking LIHTCs must be placed-in-service, according to NAA.

GSE’s Forward Commitment Programs Reformed

The Federal Housing Finance Agency (FHFA) expanded government-sponsored enterprises (GSE) Fannie Mae’s and Freddie Mac’s Forward Commitment programs, providing more financing flexibility to housing developers, NAA reported.

“The forward commitments are agreements to purchase loans at a later date with certain financing terms locked in, allowing developers to secure financing to pay off construction loans when construction has been completed and the project has been approved for occupancy.

“FHFA previously set the annual cap for the GSE’s forward commitments at $78 billion but will now exempt $3 billion of forward commitments from that cap. FHFA also lifted Freddie Mac’s $500 million cap on forward commitments for properties that do not receive LIHTCs, requiring that financed projects are at least 20% affordable over the applicable loan term.”

According to a statement by Freddie Mac, the changes grant the GSEs flexibility to execute forwards for affordable and workforce housing. The White House statement also indicated that such projects often align with other state and local incentives to create affordability without additional federal subsidies.

Transit-Oriented Development Promoted, Rewarded

Through the Transportation Infrastructure Finance and Innovation Act (TIFIA) program, the Department of Transportation (DOT) provides low-cost, long-term financing of infrastructure projects to close funding gaps. Last Tuesday, DOT announced TIFIA 49, a new initiative that authorizes sponsors creating transit-oriented development projects (including public housing) to borrow up to 49% of eligible project costs, an increase from the original 33%.

Other Housing Supply Action Plan Updates

The White House addressed other aspects of its plan. In summary, from Marcus & Millichap:

• Reward jurisdictions that have reformed zoning and land-use policies with higher scores in certain federal grant processes.
• Deploy new financing mechanisms to build and preserve more housing, including with manufactured housing (including with chattel loans), accessory dwelling units (ADUs), two-to-four-unit properties, and smaller multifamily buildings.
• Make construction-to-permanent loans more available, by exploring the feasibility of Fannie Mae purchase of these loans.
• Promote the use of government COVID-19 recovery funds to expand affordable housing supply.
• Ensure that more government-owned supply of homes and other housing goes to owners who will live in them — or non-profits who will rehab them — instead of institutional investors.