Earlier this month, President Biden announced newly focused efforts to alleviate the burden of housing costs amid rising inflation and spiking home prices. The Biden-Harris administration has publicly committed to closing the housing supply gap in five years by adding hundreds of thousands of affordable housing units within the next three years. These efforts are intended to reduce housing costs by increasing the housing supply and the fastest way to do that is by removing barriers to constructing multifamily homes.
Housing cost burdens ultimately account for one-third of the market basket of inflation according to the Consumer Price Index. Therefore, addressing the housing crisis is essential to combating inflation. Multifamily investors and developers can play a part in addressing the crisis through some of the highlighted initiatives:
Reforming Zoning and Land Use Policies
The Plan reserves some of the federal funding to reward jurisdictions that comply with reforming the zoning and land use policies to expedite construction, especially for multifamily homes. One of the most significant barriers to housing supply is the lack of readily available land at an affordable price which is largely driven by state and local zoning land-use laws. These constraining land use laws are being incentivized for reform because they artificially inflate prices and have a legacy based on segregation that limits economic growth.
Expediting the Construction-to-Permit Process
One of the goals of The Plan is to construct more new homes in 2022 than in any year since 2006. In order to do this, the government is planning to work with the private sector to address supply chain issues and improve building techniques to fast-track construction. One of the most important materials for construction that has been impacted by inflation and supply chain issues is lumber. The Bipartisan Infrastructure Law targets the importance of lumber in the supply chain by including funding for wildfire resilience, forest management, and reforestation efforts in order to maintain a robust timber supply.
Funding for modular, panelized, and manufactured housing techniques is expected to expedite housing production as well. Implementing these new housing methods will require a new standard for regulating and inspecting them for compliance since state requirements are currently inconsistent with local ones.
The labor shortage affecting construction, as well as delivery drivers transporting those materials to job sites, cannot be ignored either. As a result, the Biden administration has plans to bolster recruitment efforts for construction jobs by increasing the funding for apprenticeship programs. Targeting the construction worker shortage includes plans for comprehensive immigration reform that would help accelerate visa processing for workers.
Expanding Existing Federal Financing
Biden's administration has already clarified that they will take additional steps to improve federal financing avenues for both new construction and the repair of existing multifamily homes to help preserve supply. Specifically, the government plans to reduce the burden of housing costs with rental or down payment assistance and by disposing of federal properties to create affordable housing for people experiencing homelessness. The Plan calls on using state, local, and COVID-19 recovery funds to expand the affordable housing supply even further. Part of the initiative to expand existing funding and financing will involve making Construction to Permanent loans more widely available as well.
Increasing Funding for the Low-Income Housing Tax Credit (LIHTC) and other Programs
A major component of Biden’s Housing Supply Action Plan is that it will reform the LIHTC system which provides credits to investors developing affordable housing units. The Biden administration is finalizing a proposal to base income thresholds based on household averages instead of requiring everyone on the property to meet the specific income threshold.
Additional funding is also earmarked for the HOME Investment Partnerships Program which provides grants to states and local communities to provide housing activities. Last year’s proposed Neighborhood Homes Investment Act would provide tax credits to boost investment in homes that are otherwise considered too costly to rehabilitate, but Congress still needs to pass this bill. While this plan of action will certainly make progress with creating more affordable housing, there is always more that can be done and further reform should be expected.
To read more about the plan, click here.