The Biden administration is taking steps to help create more affordable houses and apartments, which could help fill the inventory gap that plagues the housing sector.
In the final weeks of 2023, the White House announced initiatives that will help buyers finance houses with accessory dwelling units, spur the conversion of unused office and retail space into apartments, and make it easier for people to buy and sell manufactured houses. It’s also put forth a proposal to make it easier for seniors with reverse mortgages to remain in their homes despite financial difficulties.
Here’s a brief rundown:
-- ADUs. Accessory dwelling units, those small houses built in the yards of older, larger homes, are being called a promising solution to the challenges posed by rising housing costs. They can also keep families close, and they are being embraced by more and more jurisdictions.
Just recently, Iowa City, Iowa, changed its building codes to allow for ADUs. And California law now allows owners with ADUs on their property to sell them as condominiums, separate from the primary residences.
Despite the trend, though, ADUs are often hard to finance. To meet the challenge, the Federal Housing Administration is now allowing lenders to count as income a portion of rent generated from ADUs, whether they are on the same property, attached to the house or even inside it. Even if the unit is not yet built or finished, lenders can count the potential income that it might generate as part of the borrower’s earnings.
Specifically, borrowers can count 75% of the rental income generated from an existing ADU, and 50% if the borrower plans to attach an ADU, such as a converted garage or basement, to an existing structure. The idea is to enable buyers with limited incomes to buy houses with ADUs, or to add them -- thereby increasing the supply of rental houses.
Some details from the Department of Housing and Urban Development (HUD.gov): "The FHA defines an ADU as a single habitable living unit with a means of separate ingress and egress that meets the minimum requirements for a living unit. An ADU is a private space that is subordinate in size and can be added to, created within, or detached from a primary one-unit single-family dwelling."
-- Conversions. According to a new white paper from Enterprise Community Partners, repurposing just the best-suited 10% of the underutilized strip malls throughout the country could create more than 700,000 new apartments. Many of them would likely be inexpensive rentals, or even homes for first-time buyers. The Counselors of Real Estate reports that millions of square feet of retail, office and other space conversions are either planned or already underway.
“If only a small percentage of underutilized commercial buildings were converted to housing, it could create thousands of units of much-needed housing,” according to a new guidebook from HUD and the White House entitled "Commercial to Residential Conversions."
The guide is part of a multi-agency push to encourage more local governments and private developers to explore turning empty commercial space into apartments and mixed-use spaces. It describes the federal resources available to help with such conversions, and how to access them. These resources include low-interest loans, loan guarantees, grants and tax incentives -- some of which may be combined, subject to the requirements of each program.
HUD isn’t the only agency in on the effort. The Department of Transportation will provide technical assistance to municipalities and developers seeking to use DOT tools to finance conversions; Treasury has detailed a list of tax incentives for builders of multi-family housing; and the General Services Administration has been directed to step up its efforts to locate and sell office space Uncle Sam no longer needs.
-- Mobile homes. Long considered the lowest-cost option for folks who want to own their homes, manufactured houses -- aka mobile homes or trailers -- are home to millions of families. For the most part, though, these factory-built units are financed with personal property loans at somewhat higher rates than for mortgages.
But lower-rate FHA funding is available. And to make it more accessible, the FHA has removed a roadblock regarding the requirements for comparables during the appraisal process.
The changes align with private-market programs, and should help increase the supply and affordability of factory-made housing.
-- Reverse mortgages. Seniors who desire to stay in their homes for their remaining years sometimes turn to reverse mortgages for needed income. A reverse mortgage -- in government-speak, a home equity conversion mortgage -- is a loan that you need not pay back until you leave the residence for good. You can take the proceeds either in one lump sum or periodically, and you can do whatever you want with the money.
According to one report, some 10 million people over the age of 65 still have a mortgage. But it has been difficult to administer loans held by seniors who still cannot keep up with their daily expenses.
So the FHA wants to streamline the rules by, among other things, allowing outstanding homeowners association dues to be calculated into the borrower’s repayment plan and working with those who are behind on their taxes and insurance by no more than $5,000 -- instead of just calling the loan due.