The Biden administration has been very open about its intentions to improve the abundance and affordability of housing in the country. Since the start of his term, President Biden has advocated for policies that would incentivize the creation of affordable housing. But on Sept. 1, 2021, the administration outlined the actions it will be taking to turn these goals into reality, and they will transform the real estate market we know today. Here's what the Biden administration's new housing initiative could mean for investors.
The initiative's action steps
The goal of the initiative is to create, preserve, and sell 100,000 units of affordable housing for homeowners and renters across the country over the next three years. To achieve this, the Biden administration will:
1. Relaunch past programs
This includes restarting the Department of Treasury's Federal Financing Bank and the Department of Housing and Urban Development (HUD) Risk-Sharing Program, which allowed eligible state housing finance agencies (HFAs) to provide cost-effective capital for affordable housing. This allows large entities like Ginnie Mae to help create new housing units for lower-income buyers and renters.
It also increases the cap for Fannie Mae and Freddie Mac's allowance for the Low-Income Housing Tax Credit (LIHTC), the largest federal program for affordable housing today, by $700 million.
Community Development Finance Institutions (CDFIs) and nonprofit housing groups will also receive additional funding. Funded by Freddie Mac and Fannie Mae under the Capital Magnet Fund, grants will be awarded to leverage investments in housing and economic development at least 10 times the size of the allocation.
2. Amp up manufactured housing and two-to-four-unit housing
Mobile homes and manufactured housing have long been affordable housing options across the country, but securing the financing to purchase one of these properties isn't always easy. The administration plans to improve access to funding for these property types and expand existing programs to help increase manufactured housing development in addition to two-to-four-unit housing.
3. Limiting sales to investors and large investment firms
Certain FHA-insured and HUD-owned properties would be restricted from sale to investors or large investment firms. Qualifying properties would be made available only to governmental entities, owner-occupants, and qualified nonprofit organizations through an exclusive listing period. The goal is to have at least half of all qualifying properties fall in line with these exclusive purchasing requirements each year.
HUD is already planning the bulk sale of 1,700 nonperforming loans, aiming to having 50% or more offered to not-for-profit organizations committed to rehabilitating the homes for resale. Previously, the average percentage sold to not-for-profits was around 10%.
4. Increase local funds
There are many different programs on a local level that promote the development and preservation of affordable housing. The Biden administration would continue to leverage and increase funding for these programs -- as much as $350 billion to help create local action. Forty-two cities and 33 states have agreed to put the capital into this effort. This could include relaxing exclusionary zoning and launching new programs with local leaders.
How this impacts real estate investors
These are lofty goals. While achievable, it will take a lot of monetary commitment and participation on a federal and local level for this plan to work as intended. Large investment firms that rely on HUD, Fannie Mae, or Freddie Mac as a major source of inventory through bulk purchases will feel the biggest impacts; they would have access to less inventory in the coming years. This could include private hedge funds, iBuyers, and even real estate investment trusts (REITs) that rely on this method for sourcing inventory.
Everyday mom-and-pop investors, or even midsize investors, would likely not feel too large an impact from these changes, particularly if they find inventory off-market outside of HUD or FHA sales. Most program funds could trickle down to investors willing to participate in creating additional affordable housing, whether that be through single-family homes, mixed-income apartment communities, manufactured housing, or even two-to-four-unit properties.
Programs similar to what is being proposed here, including tax incentives, grants, or easy funding, all of which help offset investment costs, can be huge incentives to lure capital into the desired market. Investors who want to stay ahead of the curve should be watching these incentives carefully, choosing their investments to benefit not just themselves but also to help deliver much-needed affordable housing to the marketplace.
No plan is perfect. And while this one will surely have positive and negative impacts on the market as a whole, there is a way to profit from and participate in the efforts. You just have to position yourself properly.