Dive Brief:
- Build-to-rent housing is now eligible for Federal Housing Administration-insured financing through two of its multifamily mortgage insurance programs, according to an announcement from HUD. The update is effective immediately.
- Multifamily rentals that consist of single-family homes, duplexes or triplexes, including site-built and manufactured, will now be treated under the same terms and conditions as traditional multifamily rental developments. The shift reflects the “expanding presence of professionally managed” build-to-rent communities and the growing demand for them, per the release.
- HUD’s update applies to FHA's Section 221(d)(4) program for new construction as well as its Section 223(f) program for acquisition or refinancing of recently developed rental communities, according to a mortgagee letter that outlines eligibility criteria.
Dive Insight:
Historically, the Office of Multifamily Housing limited its insured loans to developments with buildings containing four or more units, according to the letter. “BTR properties were excluded due to their single-family design and subdivision-style layout that raised concerns about Fair Housing Act compliance (particularly, accessibility design requirements) and valuation and underwriting challenges,” the letter reads.
The FHA’s policy change aims to make it easier to finance new rentals and increase the overall housing supply, “particularly in light of manufactured housing innovation,” according to the release.
Production of manufactured housing has dwindled from its peak in the 1970s and 1980s, with the drop in production due in part to HUD’s 1974 permanent chassis mandate that added up to $10,000 to the development cost of a new unit, Smart Cities Dive reported. The 21st Century ROAD to Housing Act, which became law in July, updated manufactured housing regulations and eliminated that chassis requirement. Now HUD plans to explore new manufactured housing designs that can be built quickly.
To qualify for FHA funding, BTR properties must be developed on a single uninterrupted site and operated as a single property and in a similar fashion to other multifamily projects on the market, per the mortgagee letter. Projects consisting of a mix of multifamily housing, with a BTR component along with traditional apartment buildings, are permitted.
Although manufactured or modular construction is allowed, the agency does note that these methods “add challenges to HUD’s traditional approach to insuring advances for work installed on-site, and these issues must be carefully vetted at the concept meeting,” according to the mortgagee letter.
Expanding the overall rental housing supply is key to improving affordability, according to Joe Gormley, who oversees the FHA and Office of Housing.
“Combined with other initiatives we are working on at HUD, including chassis removal in our manufactured housing programs, we are unshackling the market to deliver housing where it’s needed most,” Gormley said in the release.
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