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Affordable Housing 2016: What You Need to Know

An assessment of the affordable housing outlook for 2016 must take into account that a number of cities around the country have housing crises. While New York is having a crisis at the moment, there are other markets having the same experience. These include Boston, San Francisco, Los Angeles, and Washington, D.C. as well as other cities that may not come to mind as quickly including Austin, Denver, Seattle, Portland, Miami, and Denver.

Fannie Mae and Freddie Mac are coming out strongly in favor of affordable housing projects, and their products in this space are more innovative. These government-sponsored enterprises allow for higher leverage and offer lower rates than what is available for market rate transactions. The development and preservation of affordable housing continues to be a priority, and they are looking for more ways to participate.

Borrowers should pay attention to trends and changes in the policies and restrictions related to affordable housing loan programs offered by FHA lenders. Recent reductions in mortgage insurance premiums from 45bps to 25bps were announced by the FHA. The Community Reinvestment Act continues to drive bank investment in transactions for affordable housing. On the policy side, there is an effort to reduce energy use and lower operation costs for rental housing. Long-term energy sustainability is seen as a way to moderate housing costs overall.

Other trends in affordable housing include the push to broaden the scope of what is considered affordable housing. This broadening would include more people who are earning mid-level incomes as opposed to the past focus on those who are at or below 60% of the area median income. As rents have seen significant increases in the last 3 to 5 years, people are devoting a larger percentage of their income to housing, and the preservation of workforce housing is a concern.

When structuring affordable housing loans, long-term success should be the goal. Adding debt or underwriting to lower debt service coverage levels can put owners and operators in a position where they feel pressured to increase rent or cut expenses too much. Extra cash flow can help them to weather storms successfully.

Another thing to keep in mind during 2016 is that there is a shortage of housing supply in many markets. This has led to double digit rent growth that puts a great deal of pressure on households. Development of affordable housing may increase if steps are taken to achieve real property tax abatement, lower impact fees, streamlined permitting and zoning processes, and exemption from sales taxes on certain materials. The need to address low supply should be balanced by the need to avoid high vacancy levels that result from too much available housing.

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