NCSHA Washington Report | June 10, 2022

Some of the impacts higher interest rates have on housing costs are fairly obvious, yet their knock-on effects can be surprising in the additional affordability challenges they create.

For example, it’s self-evident higher rates make it more expensive to buy. Three months ago, when you could get a 30-year fixed-rate mortgage at well below four percent, the National Association of Home Builders noted, “[F]or a new home with an estimated median price of $412,506 in 2022 and the recent 30-year fixed-rate mortgage rate of 3.5 percent, a quarter percentage point increase in the interest rate would price out approximately 1.1 million households.”

Less obvious is the Philadelphia Fed’s observation that rising rates are also a threat to economically vulnerable households who already own their homes. Reviewing the performance of the main federal efforts — through FHFA and FHA — to keep mortgage borrowers in their homes, the bank’s analysts conclude, “[W]ith recent interest-rate increases, average payment reductions have decreased significantly and are now below program targets for most borrowers.”

Laurie Goodman and Michael Neal of the Urban Institute summarize some more of the counterintuitive current dynamics, writing that while “the historical evidence shows that sharply higher mortgage rates tend to slow home price appreciation and may weigh on housing market activity… home prices are unlikely to decline” because of the shortage of homes available.

With respect to new multifamily apartment construction, it’s obviously more expensive to get financing in a rising rate environment. Mike Novogradac writes:

For every full 100 basis point rise in interest rates, borrowing proceeds decline roughly 10 percent. The cost of equity capital also rises when longer-term projections of inflation are higher, again all other factors being equal. For a given stream of tax credits and tax losses, investors will invest less equity.

Yet even though higher interest rates also presumably put downward pressure on multifamily property values, potentially moderating rents for existing units, a research note from the National Multifamily Housing Council points out that apartments “are uniquely positioned to simply re-price their rents during inflationary periods in order to offset higher nominal interest rates…[and] with apartment transaction volume at record levels, investors may simply be willing to accept a lower premium for holding apartment properties.”

For many in affordable housing finance, a rising interest rate environment in and of itself is unfamiliar. For everyone, rising rates alongside increasing inflation and underpinned by a historic supply shortage are unprecedented.

We’ll all have a harder time understanding the crosscurrents in inflation, interest rates, and housing finance going forward with the sudden passing last weekend of Frank Nothaft. As the chief economist at CoreLogic and before that Freddie Mac, Frank was a frequent, popular speaker at NCSHA conferences and many other housing industry events for decades. We will miss him.

Stockton Williams | Executive Director

State HFA Emergency Housing Assistance

In This Issue

• NCSHA and NAHB Host Congressional Briefing on LIFELINE Act
• House Sets Budget Limit of $1.6 Trillion for FY 2023; Appropriations Mark-Ups Scheduled
• FHFA Releases Mission Report and Fannie Mae, Freddie Mac Equitable Housing Finance Plans
• States, Local Governments Continue to Spend Emergency Rental Assistance Funds
• NCSHA in the News
• Looking Ahead

NCSHA and NAHB Host Congressional Briefing on LIFELINE Act
This week, NCSHA and the National Association of Home Builders co-hosted a virtual briefing for congressional staff on the LIFELINE Act (S. 4181/H.R. 7078), which would allow state and local governments to use Coronavirus State and Local Fiscal Recovery Funds to make long-term loans to Housing Credit developments in need of gap financing. Nevada Housing Division Administrator Steve Aichroth and Idaho Housing and Finance Association President and Executive Director Gerald Hunter joined developers Michael Gross of LDG Development, James Pressly of Pressly Residential Group, and Tom Tomaszewski of The Annex Group to present why Housing Credit builders need Congress to pass the LIFELINE Act to get production back on track, given mounting construction costs and other barriers to development. A recording of the briefing is available here.

House Sets Budget Limit of $1.6 Trillion for FY 2023; Appropriations Mark-Ups Scheduled
On Thursday, the House of Representatives adopted a deeming resolution (H. Res. 1151), which sets a $1.6 trillion discretionary funding ceiling for FY 2023, kicking off the FY 2023 appropriations season. This level essentially matches the president’s budget request, with minor variances due to distinctions between scoring practices of the Office of Management and Budget and the Congressional Budget Office. A deeming resolution is an alternate way to set a total funding amount — also called the 302(a) number — in years in which Congress does not pass a budget resolution and provides the necessary framework for the House Appropriations Committee to draft annual spending bills. The total funding amounts available for each individual spending bill — called the 302(b) numbers — are not yet available. 

House Appropriations Subcommittee and full committee mark-ups will begin next week and continue for the remainder of June. The Transportation, Housing and Urban Development, and Related Agencies (THUD) Subcommittee will mark up its bill on June 23, followed by full committee consideration on June 30. The Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Subcommittee will mark up its bill on June 15, followed by full committee consideration on June 23. NCSHA has held a series of meetings with key staff of members of the House Subcommittee on Transportation, Housing, and Urban Development in advance of mark-ups to advocate for the highest level of funding for HUD programs in FY 2023, including sufficient funding to renew all Section 8 Project-Based Rental Assistance contracts and $2.5 billion for the HOME Investment Partnerships program.

House Sets Budget Limit of $1.6 Trillion for FY 2023; Appropriations Mark-Ups Scheduled
On Monday, the Federal Housing Finance Agency (FHFA) released its inaugural Mission Report outlining the affordable housing activities undertaken by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac and the Federal Home Loan Banks (FHLBs) in 2021. The report is part of FHFA’s efforts to ensure the GSEs and FHLBs are fulfilling their affordable housing obligations. For the GSEs, the report focuses on their activities to meet their affordable housing goals, Duty-to-Serve obligations, and fair housing requirements. For the FHLBs, the report summarizes the banks‘ activities under their housing goals as well as their individual affordable housing programs (AHP). According to the report, the GSEs purchased more than 360,000 single-family mortgages and nearly $140 billion in multifamily loans through their affordable housing activities in 2021. The report also found both GSEs met their affordable housing goals for 2021 and Fannie Mae and Freddie Mac made a total of $1.1 billion in Housing Credit investments last year, including $287 million for properties located in rural areas under the Duty-to-Serve rule. The FHLBs provided almost $1.7 billion under their AHPs from 2018–21, supporting more than 168,000 units for low- and moderate-income households.

On Wednesday, FHFA announced Fannie Mae and Freddie Mac had released their Equitable Housing Finance Plans for 2022–24. FHFA in September directed the firms to develop the plans to describe what efforts they will take to increase equity in housing finance. Both Fannie Mae and Freddie Mac’s plans say they intend to explore ways to support Special Purpose Credit Programs (SPCPs), including possible pricing changes and other beneficial terms for loans originated through SPCPs. Freddie Mac plans to develop a digital platform that will enable consumers, lenders, and housing counselors to access information about down payment assistance programs offered by HFAs and local governments. Other actions described by the firms include increasing support for housing counseling, improving credit reporting of rental payments, promoting diversity in the mortgage lending business, and increasing equity in home appraisals. The initiatives contained in the plans must still be reviewed and approved by FHFA before they can be implemented. NCSHA commented last October on an FHFA Request for Information on the Equitable Housing Finance Plans.

States, Local Governments Continue to Spend Emergency Rental Assistance Funds
Treasury recently released Emergency Rental Assistance (ERA) monthly spending data for April, showing most of the initial tranche of ERA ($25 billion in ERA 1 program funds authorized in the Consolidated Appropriations Act of 2021) has been expended and a continued fast pace of spending for the second tranche of ERA ($21.6 billion in ERA 2 funds authorized in the American Rescue Plan Act). Many states and local governments have either closed their programs or are in the process of winding them down, having used all or most of their ERA funds from both tranches. ERA 1 is scheduled to sunset officially on September 30.

Nationwide, as of the end of April, more than $17.5 billion of ERA 1 had been spent on financial assistance, such as rent and utilities. This does not include funding spent on housing stability services or administration to support the program, which may comprise as much as 20 percent of total ERA 1 funds; it also does not include ERA dollars administered by tribal governments.

Nearly $8.9 billion of ERA 2 funding has been expended on financial assistance. This does not include funding spent to support housing stability services or program administration, which may comprise as much as 25 percent of total ERA 2 funds. Tribal governments did not receive ERA 2 funding. States and localities have until 2025 to spend ERA 2 funding, though it is likely those dollars will be exhausted long before the statutorily set program sunset.

NCSHA in the News
Novogradac, 6.8.22, Housing Groups Make Suggestions for 2022–2023 IRS Priority Guidance Plan
Notes from Novogradac, 6.8.22, Tax Credits Help Promote Equity in Affordable Housing, Community Development

Looking Ahead…

Legislative and Regulatory Activities

• June 22 | House Financial Services Subcommittee on Consumer Protection and Financial Institutions Hearing | Better, Together: Examining the Unified Proposed Rule to Modernize the Community Reinvestment Act
• June 28 | House Financial Services Subcommittee on Oversight and Investigations Hearing | Where Have All the Houses Gone? Private Equity, Single-Family Rentals, and America’s Neighborhoods
• June 29 | House Financial Services Committee Hearing | Boom and Bust: Inequality, Homeownership, and the Long-Term Impacts of the Hot Housing Market
• July 11 | Comments Due to NCSHA | Joint Agency Proposed Community Reinvestment Act Regulations
• July 15 | Comments Due to NCSHA | SEC’s Proposed Rule on Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices
• TBD (early August) | Comments Due | SEC’s Proposed Rule on Enhanced Disclosures by Certain Investment Advisers and Investment Companies about Environmental, Social, and Governance Investment Practices
• August 5 | Comments Due | Joint Agency Proposed Community Reinvestment Act Regulations

NCSHA, State HFA, and Industry Events

• June 10 – 12 | 2022 Innovative Housing Showcase | Washington, DC
• June 15 | Affordable Housing Tax Credit Coalition and Housing Advisory Group Affordable Housing Symposium | Washington, DC
  Jennifer Schwartz will speak at this event.
• June 16 | National Association of Home Builders’ Affordable Housing Group Steering Committee Meeting | Washington, DC
  Jennifer Schwartz will speak at this event.
• June 21 – 24 | NCSHA’s Housing Credit Connect | Chicago
• July 14 | National Council of State Legislatures’ Hill Housing Briefing | Virtual
  Jennifer Schwartz will speak at this event.
• July 20 | Consortium for Housing Asset Management Policy Webinar | Virtual
  Jennifer Schwartz will speak at this event.
• July 27 – 29 | IPED Tax Credit Property Disposition Conference | Philadelphia, PA
  Jennifer Schwartz will speak at this event.
• August 17 – 19 | Arizona Housing Forum | Scottsdale, AZ
  Jennifer Schwartz will speak at this event.

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