NCSHA Washington Report | June 30, 2023

Published on June 30, 2023

The same forces causing the highest home mortgage insurance costs in decades, which we wrote about last week, are also inflicting punishing financial penalties on apartment owners and developers that may be adding a new systemic challenge to rental affordability.

More frequent and severe natural disasters, higher construction costs exacerbated by inflation, excessive litigation, and structural changes in the insurance and reinsurance industries drove average multifamily insurance costs 26 percent higher over the past year, according to the National Multifamily Housing Council. This spring saw the 22nd consecutive quarter of cost increases in the council’s surveys. (NMHC and we have previously pointed out that some insurance companies’ opaque use of “crime scores” imposes additional costs on affordable developments.)

Higher multifamily insurance costs — whether for property casualty, general liability, or builders’ risk coverage — are part of a broader trend affecting all commercial real estate. Commercial property premiums increased by more than nine percent across the board last year and were up 20 percent more by the end of the first quarter of the year, the largest such spike in two decades, according to the Council of Insurance Agents & Brokers.

The trend has been visible in affordable housing for several years. The 2022 edition of Novogradac’s annual survey of apartment operating expenses, which found that “over the previous four years, property insurance outpaced the overall growth rate in expenses with combined increase of 87.6% over that period,” observed, “[A]mong the 15 states with at least 12 [Housing Credit] properties in Novogradac’s data set, 12 saw increases in property insurance expenses — and most saw significant increases.”

An S&P Global Ratings review of expenses for 60 Housing Credit-financed properties from 2020 – 2022 also found higher insurance premiums were driving operating costs higher than revenues. “We expect property and casualty insurance premiums for commercial properties, including multifamily, will keep rising through 2023,” the rating agency said. “This is in part due to the material increases in insurance claims resulting from both the greater frequency of weather-related damages and the inflation-affected cost of repairs.”

In a new white paper on the issue, Thom Amdur of Lincoln Avenue Capital makes the critical point, “While owners and developers of affordable housing and conventional multifamily housing can take steps to reduce other types of operating expenses … property casualty and general liability policies are not ‘optional’ coverages; lenders, investors, State Housing Finance Agencies, HUD, and the USDA require owners to maintain adequate insurance coverage throughout the life cycle of a property.”

State HFAs are hearing more every day it seems from owners and developers seeking relief and through NCSHA are exploring how various streams of federal Covid-era programs and administrative adjustments to other federal policies help fill some of the widening cost gaps.

At best, any of those will likely be limited, short-term solutions. More comprehensive action may need to come from the states, where the insurance industry is largely regulated, and perhaps from Congress.

Stockton-Williams-Washington-Report

Stockton Williams | Executive Director

Washington Report will return on July 14.

State HFA Emergency Housing Assistance

In This Issue

NCSHA Comments on FHA Payment Supplement Partial Claim
NCSHA Urges FHFA to Formalize Fair Housing Policies, Equitable Housing Finance Plans
EPA Issues NOFA for Solar for All Program
FHA Raises Multifamily Large Loan Threshold
HUD Proposes Changes in FMR-Setting Methodology
HUD Publishes FY23 HOME, HTF Homeownership Value Limits
NCSHA in the News
Looking Ahead

NCSHA Comments on FHA Payment Supplement Partial Claim
Today, NCSHA submitted comments to the Federal Housing Administration (FHA) on its draft mortgagee letter proposing to establish a new Payment Supplement Partial Claim. The letter commends FHA on its efforts to develop a solution for Covid-impacted homeowners who cannot resume making their regular mortgage payments in this higher interest rate environment. The letter also underscores the proposal’s complexity and requests changes to facilitate its implementation and make it easier for homeowners to understand it.

NCSHA Urges FHFA to Formalize Fair Housing Policies, Equitable Housing Finance Plans
NCSHA on Monday submitted comments in support of a Federal Housing Finance Agency (FHFA) proposed rule that would codify into regulation many of FHFA’s existing policies and practices for supporting fair housing and an equitable housing finance market. Formalizing these policies and practices, NCSHA’s letter says, would ensure the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac and the Federal Home Loan Banks continue to take steps to address racial and ethnic inequities in the housing finance system. The letter expresses NCSHA’s strong support for a provision in the proposed rule to codify FHFA’s directive requiring each of the GSEs to develop Equitable Housing Finance Plans that outline what efforts they intend to take over a three-year period to increase equity in housing finance and includes several provisions for improving transparency about plan implementation and evaluation.

EPA Issues NOFA for Solar for All Program
On June 28, the Environmental Protection Agency (EPA) released a notice of funding opportunity for its $7 billion Solar for All program, through which EPA will award up to 60 grants to states, territories, tribal governments, municipalities, and eligible nonprofits to expand access to solar power for low-income and disadvantaged communities. Up to 56 awards will be made to eligible entities to serve a single state or territory. Awards will be grouped by size, with small programs serving up to 10,000 households eligible for awards between $25 and $100 million; medium programs serving between 10,000 and 30,000 households eligible for awards between $100 and $250 million; and large programs serving more than 30,000 households eligible for awards between $250 and $400 million. The program’s anticipated start date is July 2024, with a negotiated period of performance of up to five years. Funds will be awarded through cooperative agreements, which provide for substantial involvement between EPA staff and successful applicants.

EPA will host at least one informational webinar on the application process, on July 12 at 1:00 p.m. ET. Interested parties are required to submit a notice of intent to apply; for states, submission of the notice of intent is due no later than July 31. Complete application packages must be submitted on or before September 26.

FHA Raises Multifamily Large Loan Threshold
FHA on Wednesday raised its multifamily large loan threshold to $120 million from $75 million, according to Mortgagee Letter 2023-14. HUD said this is the first increase since 2014 and its risk analysis and industry feedback showed this increase is prudent, primarily due to housing and construction cost increases over the last decade, and would not pose undue risk to FHA’s insurance fund. Loans that exceed the large loan limit trigger additional underwriting requirements to qualify for FHA insurance, including higher debt service coverage ratios and lower loan-to-value/cost limits. FHA said it would review the threshold on an annual basis in the future.

HUD Proposes Changes in FMR-Setting Methodology
On June 23, the Department of Housing and Urban Development (HUD) published proposed changes to the methodology used for calculating fair market rents (FMRs). An area’s FMR is the amount a tenant would need to pay for shelter and utilities to reside in a modest unit of privately owned, decent, and safe rental housing. HUD’s FMRs are used to determine payment standards and rent ceilings for a variety of programs, including the Housing Choice Voucher, HOME Investment Partnerships, and Emergency Solutions Grants programs.

On September 1, 2022, HUD published a notice announcing Fiscal Year (FY) 2023 FMRs, describing the methodology behind their calculation, and soliciting comments from the public. The present notice responds to those comments and describes two specific modifications to the FY23 FMR calculation methodology that HUD proposes to use for FY24. First, because the American Community Survey (ACS) is conducted by the Census throughout the year on a rolling basis, HUD proposes “to consider the rents of households who moved into their unit only in the current ACS year,” subject to the availability of statistically reliable data for a given area. Second, HUD proposes additional measures to refine its FMR calculation methodology beyond incorporating private rental data from companies such as CoreLogic and Zillow, as it did in FY23. HUD is requesting public comment on these proposed changes. The comment period ends on July 24.

HUD Publishes FY23 HOME, HTF Homeownership Value Limits
On June 27, HUD issued new homeownership value limits for the HOME Investment Partnerships program and Housing Trust Fund (HTF). These new limits, intended to reflect 95 percent of the median purchase price for an area of newly constructed and existing housing, will go into effect on July 1. The new homeownership value limits for HOME may be found here and for HTF here.

NCSHA in the News
WCPO Cincinnati, 6.27.23, Hamilton County breaking ground on ‘historic’ affordable housing project, construction to begin next month
City Beat, 6.27.23, Hamilton County and the Cincinnati Development Fund Announce Projects in First Round of ‘Historic’ Affordable Housing Funding

Looking Ahead…

Legislative and Regulatory Activities