The Federal Housing Administration (FHA) announced Thursday that it will cut multifamily mortgage insurance rates starting April 1 to stimulate the production and rehab of affordable, mixed-income, and energy-efficient housing.
The FHA estimates that the multifamily insurance rate reductions will spur the rehab of an additional 12,000 units of affordable housing annually, create new units, and improve energy efficiency to help reduce utility costs for residents.
This comes at a time when the nation continues to lose more than 300,000 affordable housing units a year from the aging stock and faces an affordability crisis with more than a quarter of renters spending over half their incomes on rent.
“More Americans will have a safe place to call home,” said Julian Castro, secretary of the Department of Housing and Urban Development (HUD), at the announcement during a visit to an affordable housing community in Columbus, Ohio. “We want to use every tool at our disposal to spark the creation of more affordable housing in communities big and small.”
For affordable housing where at least 90% of the units are under Sec. 8 contracts or covered by low-income housing tax credit affordability requirements, FHA will be lowering the annual rates to 25 basis points (bps), a reduction of 20 or 25 bps from current rates.
For mixed-income properties, which have units set aside based on affordability through the LIHTC, Sec. 8, inclusionary zoning, or other local requirements, FHA will lower the annual rates to 25 bps, a reduction of 10 to 35 bps from current rates.
For energy-efficient properties, which include those committed to industry-wide green building standards and committed to energy performance in the top 25% of multifamily buildings nationwide determined by the Environmental Protection Agency Portfolio Manager score, FHA will lower annual rates to 25 bps, a reduction of 20 to 45 bps.
FHA also will reduce up-front premiums to support these goals and to streamline the premium structure.
Market-rate properties that are not energy efficient will not see any changes in multifamily insurance rates or up-front premiums.
“In recent years, the changes that HUD has made to streamline the FHA program with respect to affordable and mixed-income housing has made it more user friendly,” said Kevin McCormack, CEO of national developer McCormack Baron Salazar. “This announcement substantially reducing the multifamily insurance rates is a welcome boost for affordable housing developers. We don’t have an easy life, but this does make it a little easier.”