The following article is written by Moses Gates, Director of Community Planning and Design at the Regional Plan Association (RPA). Strong Towns partnered with RPA and the Oram Foundation in February of 2016 to produce a week of content spotlighting the problems of federal housing policy. Below is a follow-up to that conversation.


 RPA’s February 2016 report -- The Unintended Consequences of Housing Finance -- presented some unfortunate effects of federal housing finance policies and programs.  In particular, it noted how many older central city and inner suburban areas have been effectively stopped from being able to build and rehabilitate housing, due to being excluded from government insurance and financing programs from HUD, FHA, Fannie Mae and Freddie Mac.  The reason is structural – many of these areas have high amounts of dilapidated two or three story buildings with the capacity for apartments above commercial or non-profit storefronts. The government financing and insurance programs generally limit the amount of non-residential use in a building, meaning these types of buildings have a hard time getting financing to renovate or build the types of infill projects that can help revitalize walkable, mixed-use neighborhoods.

But a year later, there is some good news to report. Fannie and Freddie have made progress in expanding programs to these types of low-rise small properties.  Fannie’s Small Loans Program now provides expedited processing for loans up to $3 million nationally, and $5 million in more costly markets. This program can help to revitalize four-story buildings, and can even help with three-story buildings, if affordable housing or important community services are part of the deal.

Freddie has a similar Small Balance Loan (SBL) program which is even better suited to mixed-use settings.  Like the Small Loans Program, in 2016 SBL offered $3 million and $5 million maximum loans, but with even more flexibility for non-residential space. Under this program, a building as small as two stories may be able to participate if some of the ground floor is housing.  And recently, because of strong demand and feedback from the market, SBL’s standard market loan limit was doubled to $6 million, and the high cost area limit was increased by 50% to $7.5 million. These changes are expected to have considerable impacts for many older buildings that will now have access to financing for rehabilitation or renovation, and neighborhoods where contextual, mixed-use infill development is needed.  Financing for adding apartments to existing one-story commercial spaces in newer neighborhoods might also become more widely available. 

Builders and financers are already hailing the new guidelines as helping to build great housing and neighborhoods, both in the region and nationwide. According to Rafael Cestero, President and CEO of the non-profit Community Preservation Corporation which primarily serves New York State, “These small multifamily buildings are a critical piece of our housing stock, and tend to be older, in need of investment and where most low- to moderate-income families live. Freddie Mac’s Small Balance Loan product, tailored to needs of small building owners, offers a flexible tool that helps fill the gap for this segment of the housing stock.”

Ward Davis, President of the National Town Builders Association said, “Freddie Mac’s new program encourages mixed-use/multi-family and helps us compete with conventional apartment complexes, while thoughtfully integrating great restaurants, shops and vital services for tenants and neighborhoods.”

Housing development in the United States isn’t a one-size-fits-all model. Different types of neighborhoods and urban forms have different financing needs. Kudos to Fannie Mae and Freddie Mac for taking these steps. 

(All photos by Johnny Sanphillippo)


Related stories