The Department of the Treasury announced “new guidance” to “increase the ability of state, local, and tribal governments to use American Rescue Plan (ARP) funds to boost the supply of affordable housing in their communities.”
The move is part of the Biden administration’s “housing supply action plan to help close the housing supply gap in five years.” The first part starts “with the creation and preservation of hundreds of thousands of affordable housing units in the next three years.” The White House says that closing the gap “will mean more affordable rents and more attainable homeownership for Americans in every community.”
The Treasury noted that it had “encouraged” state and local governments to put some of the $350 billion they could receive under the State and Local Fiscal Recovery Funds (SLFRF) toward development and upkeep of affordable housing units. As experts have told GlobeSt.com on repeated occasions, the continuing obsolescence of older, more affordable housing stock makes it more difficult to close the housing gap.
“New Treasury data shows that those efforts have yielded strong results: through March 31, 2022, over 600 state and local governments had budgeted $12.9 billion in SLFRF funds to meet housing needs and lower housing-related costs, including $4.2 billion for affordable housing development and preservation,” the department said.
That was only 3.7% of the total funds, much of which has yet to be released, and clearly not enough, especially with the economics of the last few years. “After a small increase in May, US pending home sales fell 8.6% in June to the lowest level since the first months of the pandemic,” wrote Oxford Economics in a note on Wednesday. “Still-high home prices, elevated mortgage rates and a limited supply of homes for sale are clearly taking a toll on the existing homes market.”
The Treasury mentioned two new steps in its plan. The first is to increase the ability to use SLFRF funding more easily to finance long-term affordable housing loans. “The guidance updates permit governments to use SLFRF funds to fully finance long-term affordable housing loans, including the principal of any such loans, subject to certain conditions,” the department wrote. “These changes will facilitate significant additional financing for affordable housing projects, including those that would be eligible for additional assistance under Treasury’s Low Income Housing Credit (LIHTC).”
The second is to expand presumptively eligible uses. “Treasury’s Final Rule was initially designed to allow for flexibility in the use of funds for affordable housing, identifying uses consistent with two major HUD programs as presumptively eligible under SLFRF,” it wrote. “Today’s guidance expands that list to include an expanded range of federal programs from multiple agencies, permitting more options for how states and local governments can presumptively use funds for affordable housing. These changes are intended to build on Treasury’s efforts to facilitate the use of SLFRF to leverage other sources of federal funding for affordable housing.”
The Treasury is also updating guidance so governments can use SLFRF funds to “finance the development, repair, or operation any affordable rental housing unit that provides long-term affordability of 20 years or more to households at or below 65% of the local area median income,” which will likely be of interest to the multifamily sector.