FHA opens insured financing to build-to-rent projects

The Federal Housing Administration will let build-to-rent projects qualify for its new construction and acquisition or refinancing programs, Multifamily Dive reported. The Office of Multifamily Housing had limited insured loans to developments with buildings containing four or more units, according to the mortgagee letter behind the change. That threshold left BTR subdivisions out of the programs.

The letter attributes the old exclusion to single-family design and subdivision-style layout, which raised Fair Housing Act compliance concerns, particularly accessibility design requirements, along with valuation and underwriting challenges. The agency says the change is meant to make it easier to finance new rentals and increase housing supply, "particularly in light of manufactured housing innovation."

To qualify, a BTR project must be developed on a single uninterrupted site and operated as a single property in a similar fashion to other multifamily projects on the market, per the letter. Projects that mix a BTR component with traditional apartment buildings are permitted. The single-site test suggests the program suits purpose-built communities more than portfolios assembled from scattered parcels.

Manufactured or modular construction is allowed, but the letter says those methods add challenges to HUD's traditional approach to insuring advances for work installed on-site. The letter says those issues must be carefully vetted at the concept meeting. For a sponsor, that reads as a schedule question as much as a construction one: advances are tied to work installed at the site, and a factory-built pipeline has to be reconciled with that process before closing.

HUD ties part of the push to manufactured housing innovation. Output has dwindled from its peak in the 1970s and 1980s, a decline due in part to HUD's 1974 permanent chassis mandate, which added up to $10,000 to the cost of developing a new unit, according to Smart Cities Dive reporting cited by Multifamily Dive. The 21st Century ROAD to Housing Act, which became law in July, eliminated that chassis requirement. HUD now plans to explore manufactured designs that can be built quickly.

Expanding the overall rental housing supply is key to improving affordability, according to Joe Gormley, who oversees the FHA and the 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.