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GSEs Boost Their Investment in Safe and Affordable Housing

In a move to support the nation’s underserved housing markets, the Biden Administration and the Federal Housing Finance Agency (FHFA) [1] have announced that Fannie Mae [2] and Freddie Mac [3] (the GSEs) can each invest up to $850 million annually in the Low-Income Housing Tax Credit (LIHTC) [4] market as equity investors. Previously, each GSE was limited to $500 million of investment annually in the LIHTC market.

Within this $850 million annual funding cap, any investments above $425 million each year are required to be in areas that have been identified by FHFA as markets that have difficulty attracting investors.

Today’s move by the FHFA marks an increase in the amount of investments under the cap that must be made in targeted transactions that either support housing in Duty to Serve [5]-designated rural areas, preserve affordable housing, support mixed-income housing, provide supportive housing, or meet other affordable housing objectives.

"The severe shortage of affordable housing in America requires coordinated government action,” said Acting Director Sandra L. Thompson [6]. “As part of the federal government's response, FHFA is instructing Fannie Mae and Freddie Mac to boost the housing supply in communities across the country by significantly increasing their Low-Income Housing Tax Credit investments and by expanding opportunities for local families to access affordable homeownership and rental housing. In addition, FHFA will begin to study the interaction between exclusionary zoning and our regulated entities.”

As supply constraints have intensified, large investors have stepped up their real estate purchases, including of single-family homes in urban and suburban areas. One out of every six homes purchased in Q2 was acquired by investors [7], and reports indicate that in some markets, that number is one in four. Within investor purchases, typically more than 35% of purchases are made by investors [8] that own more than 10 properties. Large investor purchases of single-family homes and conversion into rental properties speeds the transition of neighborhoods from homeownership to rental and drives up home prices for lower cost homes, making it harder for aspiring first-time and first-generation home buyers, among others, to buy a home. At the same, these purchases are unlikely to meaningfully boost supply in the lower-cost portions of the rental market, as investors charge more for rent to recoup higher purchase costs.

The LIHTC is the primary government program available to address the shortage of affordable rental housing through the creation and preservation of affordable units in underserved areas throughout the country. FHFA will continue to evaluate the GSE’s participation in the LIHTC equity market on an ongoing basis.

In addition to the FHFA raising the LIHTC for the GSEs, the Biden Administration has also announced the following goals [9] to boost affordable housing:

Since its return to the LIHTC market, Fannie Mae's $1.8 billion worth of commitments have supported the creation and preservation of thousands of affordable units. The LIHTC program accounts for a majority of all affordable rental housing created and preserved in the U.S. The increase in the cap allows Fannie Mae to maintain its commitment to supporting the growing needs for quality affordable housing for the nation's renters.

"LIHTC investments are one of the most impactful tools we use to create and preserve affordable housing in underserved markets. Increasing the annual cap allows us to better address the affordable housing supply shortage for low- and very low-income families," said Michele Evans [10], EVP and Head of Multifamily, Fannie Mae. "Since our return to the LIHTC market in 2018, we have been able to better serve the multifamily market and play an integral role in addressing our nation's affordable housing crisis."

Debby Jenkins [11], EVP and Head of Multifamily for Freddie Mac, said, “Freddie Mac has built a robust LIHTC Equity investment program, with more than 120 investments in 26 states and Puerto Rico and Guam since 2018. This work has supported the preservation or creation of thousands of units of rental housing, meeting the needs of underserved communities throughout the country. FHFA’s announcement today will allow us to build on this work in the years to come and do so much more to meet the tremendous need for additional safe and affordable housing.”

Some of Fannie Mae’s notable LIHTC investments made through June 30, 2021, include the following properties:

"FHFA's increase in the cap allows us to continue to play a leadership role in supporting underserved markets and projects, including rural, supportive housing developments, and disaster impacted areas," said Dana Brown [12], VP, Multifamily for Fannie Mae. "We are a steady and reliable presence in the LIHTC equity market. This consistent support was evident over the past year when pandemic-related factors disrupted many markets and economic activities. Throughout this challenging period, Fannie Mae continued its steady pace of LIHTC investments month after month, assuring our LIHTC market partners that we planned to continue to invest throughout 2020 and beyond."

Some of Freddie Mac’s LIHTC equity investments include the following:

"Increasing the amount each Enterprise can invest in the LIHTC market, especially in areas that have difficulty attracting investors, will help expand the supply of affordable housing across the country," added Thompson. "Today's announcement is a part of FHFA's continued efforts to help alleviate America's affordable housing shortage."