The Federal Housing Administration (FHA) invested $11 billion in multifamily rental in 2010, which put that agency on nearly equal footing as a funding resource with Fannie Mae, which provided $16.9 billion in debt financing for apartments (down 14% from 2009); and Freddie Mac, which invested $13 billion.
What’s also noteworthy is that two years earlier, FHA’s investment in this sector was only about $2 billion. “As it has for single-family [financing], FHA has needed to step up to the plate when private capital is sitting on the sidelines,” says Carol Galante, deputy assistant secretary for multifamily housing at HUD in Washington, D.C. President Obama appointed Galante, the former CEO of BRIDGE Housing in California, to her post at HUD in March of 2009.
Her department has encountered some confusion among developers, banks, and other stakeholders about FHA’s willingness to provide financing for market-rate projects, especially if they don’t precisely align with HUD’s criteria for affordability and sustainability.
Galante tells Builder that HUD will soon issue a formal statement that more clearly delineates FHA’s financing parameters, which she insists don’t automatically exclude market-rate rental. In addition, HUD has been reaching out to the development and lending communities to clarify its investment position. That includes sending a representative to speak at the Mortgage Bankers Association’s Commercial Real Estate Finance/Multifamily Housing Convention and Expo in San Diego last week.
What’s causing some of this confusion, explains Galante, has been HUD’s strategic plan, which revolves around its support for building affordable and sustainable communities. One objective of the department’s Management Action Plan is to have 75% of FHA’s endorsements be affordable, sustainable, green, or support a market’s economic development.
Another objective, says Galante, is for HUD to get a better handle on whether the properties for which FHA provides financing are meeting its lending standards. “HUD currently doesn’t track how affordable rents are in market-rate properties, and one of our goals is to track what we’re doing.”
Galante thinks it’s unlikely that FHA would go back to the days when “we were practically irrelevant” in multifamily rental. And just how large its annual investment should be in that sector will likely be determined by how aggressively private capital jumps back into the game. At the very least, though, “we need to have the infrastructure and intellectual capital in place to do a reasonable amount of business so that we can step in when there’s a need.”
Given that the demand for market-rate and public-sector rental housing is expanding, “it’s important that there’s an adequate supply of rental for people who want to rent for a variety of reasons,” says Galante. “But when you have increased demand, that puts pressure on rents.”
She believes developers, builders, and property managers will “embrace” affordability as long as they can get a decent return on their investment. But it might also be necessary for FHA to sustain its investment in multifamily rental for a while longer, just to ensure that there’s sufficient affordable product available, especially for low- and lower middle-income renters.
John Caulfield is senior editor for Builder magazine.