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Housing execs to Congress: Multifamily projects strained by rules

WASHINGTON — As demand for home rentals continues to rise, regulatory burdens could decrease the multifamily housing supply and drive up costs, witnesses said at a congressional hearing Wednesday.

Multifamily developers are increasingly facing difficulties securing financing because of compliance costs. Many are either forced to charge exorbitant rents to convince lenders to back them, or abandon projects entirely, said Steven Lawson, the chairman of Lawson Companies, speaking on behalf of the National Association of Home Builders.

“Overregulation of the housing industry is felt at every phase of the building process,” he said in prepared testimony to the House Financial Services subcommittee on housing and insurance. “These added costs result in higher rents and reduced affordability. In many cases, these projects become financially infeasible and, therefore, are not built.”

Several studies, including one conducted by the homebuilder association, found that government regulation at the federal, state and local levels accounts for more than 30% of the cost of multifamily developments.

“I see the harmful impact of our nation’s antiquated, duplicative, costly regulatory systems on a daily basis,” said Sue Ansel, the head of Gables Residential and chairwoman of the National Multifamily Housing Council. “These time and cost burdens lead to fewer apartments and homes being built, and the apartments that do get built require higher rents to cover the high cost of development.”

Lawson also argued that wage requirements for public works projects, mandated under the Davis-Bacon Act, drive up the cost of affordable housing. Those requirements apply, for example, in construction and rehabilitation projects financed through the Federal Housing Administration’s multifamily mortgage insurance programs.

“NAHB is concerned that these policies will dissuade builders and lenders from using FHA multifamily mortgage insurance programs, resulting in fewer affordable units for hard working Americans during an affordable housing crisis,” Lawson said.

However, he said some federal oversight has proved beneficial to affordable housing.

In November 2017, the Federal Housing Finance Agency announced that mortgage giants Fannie Mae and Freddie Mac would be allowed to re-enter the Low-Income Housing Tax Credit Market as equity investors, which is expected to increase competition and consequently increase the value of the credits.

“Preserving all these financing options is critical to ensuring that developers of affordable multifamily housing units have steady and reliable access to affordable credit,” he said.

However, loosening compliance standards alone won’t ensure an ample supply of rental housing, argued Erika Poethig, vice president and chief innovation officer at the Urban Institute.

“Easing regulatory barriers that limit or exclude multifamily development is essential to fixing the supply problem, but they will not be enough,” she said in written testimony. “This is a market failure and public investment and subsidies are necessary to bridge the cost gap and meet the needs of extremely low-income renters.”

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