|
Why Federal Housing Policy Matters Locally
Land-use decisions remain primarily the responsibility of states and municipalities. The federal government does not determine the zoning of individual parcels or directly approve most housing developments.
Federal policies nevertheless influence whether projects can proceed and how much they cost. Federal funding supports affordable housing, infrastructure, rental assistance, mortgage lending, manufactured housing, disaster recovery, and community development. Projects receiving federal assistance may also be subject to federal environmental reviews, program rules, inspections, and financing requirements.
The new law attempts to make these federal systems work more efficiently while offering communities additional tools to increase housing production. Its effects will depend heavily on federal implementation, future appropriations, state and local participation, and the willingness of communities to address zoning, infrastructure, and permitting barriers.
Encouraging Communities to Build More Housing
The law directs the U.S. Department of Housing and Urban Development (HUD) to develop best-practice frameworks for state and local zoning and land-use policies. These guidelines are intended to help communities identify policies that may unnecessarily limit housing production and evaluate alternatives that could accommodate a wider range of housing types. The federal government will provide guidance, but communities will retain control over their own zoning decisions.
The law also establishes or authorizes several grant programs intended to support local implementation:
- A competitive grant program for regional planning and affordable housing activities
- Funding to help communities develop preapproved housing designs or “pattern books,” potentially reducing design and permitting costs for commonly-used housing types
- An Innovation Fund, authorized at $200 million annually for five years, to support housing production, community infrastructure, and supplemental water and sewer investments
- A pilot program to help local governments convert certain vacant commercial or industrial buildings into affordable housing
Infrastructure and Economic Development
Housing development is often discussed primarily as a zoning issue, but many communities cannot accommodate additional homes without investments in water, sewer, roads, utilities, or other infrastructure.
The law’s proposed Innovation Fund explicitly recognizes this connection by allowing grants to support community infrastructure and supplemental water and sewer needs associated with housing production. Because the program is authorized rather than fully funded in the legislation, its ultimate reach will depend upon future congressional appropriations and HUD implementation.
The law also expands the ways in which communities may use funding through the federal HOME Investment Partnerships Program, including greater flexibility for certain housing-related infrastructure costs. HOME is the principal federal block-grant program devoted exclusively to creating and preserving affordable housing for lower-income households.
Streamlining Federal Reviews
The legislation streamlines National Environmental Policy Act reviews for certain federally supported housing activities, including some small-scale construction, rehabilitation, property acquisition, and infill development. It also seeks to eliminate duplicative reviews for projects involving more than one federal agency or funding source.
These changes do not override state environmental laws, local permitting requirements, building codes, wetlands protections, or zoning regulations. They are intended to reduce delays attributable specifically to federal procedures, particularly when a relatively modest project is subject to multiple layers of review.
Accessory Dwelling Units and Alternative Housing
The law contains several provisions intended to expand the use of manufactured, modular, and other forms of factory-built housing.
It removes the federal requirement that manufactured homes be constructed on a permanent chassis, directs HUD to review financing barriers facing modular housing producers, raises certain federal loan limits for manufactured homes, and authorizes continued investment in the preservation of manufactured-home communities.
The legislation also makes the construction of an accessory dwelling unit, or ADU, an eligible use of certain FHA-insured property-improvement loans. This does not provide a direct grant to an ADU owner, nor does it change municipal zoning, permitting, septic, or building-code requirements. It could, however, provide an additional financing option for qualifying property owners seeking to construct an ADU.
This provision is timely for Massachusetts, where communities are implementing the state’s recent legalization of ADUs by right in single-family zoning districts. Be sure to join the 495/MetroWest Partnership's Housing Committee for a discussion of ADUs on Wednesday morning.
Financing Housing
The legislation includes a pilot program intended to improve access to small-dollar mortgages of less than $100,000. These loans can be difficult for borrowers to obtain because lenders’ fixed origination and servicing costs may be high relative to the value of the mortgage. The law also directs federal regulators to examine loan-originator compensation, fees, and other rules that may discourage small-dollar lending.
The law raises the limit on certain bank investments in affordable housing and community development activities from 15 percent to 20 percent. It also makes a series of regulatory changes affecting community banks and credit unions, with the broader objective of preserving locally-based lending capacity.
Institutional Investors
One of the law’s most prominent provisions restricts additional single-family-home purchases by large institutional investors.
An investor that owns more than 350 single-family homes will generally be prohibited from purchasing additional existing single-family properties. The final law contains exceptions, including for qualifying build-to-rent developments, nonprofits, community land trusts, and certain other transactions. It also establishes a HUD resource center for renters living in institutionally-owned properties and requires additional reporting regarding investor portfolios and tenant complaints.
Supporters argue that these restrictions will reduce competition between large investors and individual homebuyers. The practical effect may vary considerably by market, however, because institutional ownership is concentrated more heavily in certain metropolitan areas and represents only one component of the nation’s broader housing shortage.
Preserving Existing Housing
The law creates a five-year Whole-Home Repairs pilot program through which states, local governments, and tribes may provide grants or forgivable loans to qualifying homeowners and landlords. Eligible work may include repairs addressing safety hazards, accessibility needs, unhealthy conditions, and code-related deficiencies.
The legislation also expands the federal Rental Assistance Demonstration program by 100,000 units. That program allows public housing authorities to use private and public financing to rehabilitate aging federally assisted properties while retaining affordability and tenant protections.
What the Law Does Not Do
The legislation does not federalize zoning, mandate local housing production, directly lower mortgage rates, or itself provide all funding necessary for implementation. Many programs require future appropriations and extensive federal rulemaking before becoming operational.
Implications for 495/MetroWest
The provisions most relevant to the region include opportunities for regional housing planning, water and sewer infrastructure investment, commercial-property reuse, ADU financing, modular housing, preservation of existing housing stock, and new partnerships involving municipalities, lenders, housing authorities, employers, and nonprofit organizations. The 495/MetroWest Partnership will continue monitoring implementation, funding opportunities, and regulatory guidance as federal agencies begin carrying out the law.
For More Information
Further reading on this topic:
| 
