FHFA proposes new affordability goals to address rising rents

The high cost of rent can be a solid supporting argument for the benefits of homeownership, particularly when marketing to first-time buyers in Gen Z, but recent statistics suggest it's become increasingly negative for overall housing affordability.

That's among the reasons why the Federal Housing Finance Agency on Tuesday proposed changing the multifamily goals from key government-related loan buyers in ways that could lead to the creation of more affordable apartment units.

The new goals for 2023-2024 would be based on the share rather than the number of units, with 61% affordable to low-income borrowers. Current goals call for 415,000 units in this category. Under the new proposal, a 12% subgoal also would exist for very low-income units rather than the current 88,000 units. In addition, the FHFA would have a 2% subgoal for low-income small multifamily rather than 17,000 units for Fannie Mae, and 23,000 for Freddie Mac.

The FHFA generally issues goals in three-year increments, but the agency's last ones were set for 2022 alone due to uncertainty associated with the pandemic.

"Today's proposed rule would ensure that each enterprise's focus remains on affordable segments of the multifamily market and reaffirms FHFA's commitments to its statutory duty to promote affordability nationwide," FHFA Director Sandra Thompson said in a press release. "The proposed change to the methodology will make the multifamily housing goals more responsive to market conditions."

More than half, or 58% of renters have seen their apartment costs rise in the past 12 months and for 32% the increase has been 10% or more, according to a recent Freddie Mac survey. 

Freddie surveyed a representative sample of 2,000 respondents that were 18 or older from June 6 to June 10 for its study.

The GSE found the majority of tenants, or 57%, consider themselves extremely (19%) or somewhat (38%) likely to miss a payment as a result, potentially affecting multifamily loan cash-flows, and the ability to finance a home purchase based on their rental history.

"The surge in rents that took place over the last 12 months has created even greater housing uncertainty," said Kevin Palmer, head of Freddie Mac's multifamily division, in a press release issued Monday. 

Nearly two-thirds or 65% of renters have changed their plans to buy a home due to higher apartment costs. While a couple contingents within this group do want to accelerate the process, with 18% significantly more likely to buy and 10% slightly more prone to doing so, the vast majority (73%) are curtailing plans to enter the purchase market. Most of those in the last category are significantly less likely to buy (42%) with another 31% slightly less prone to doing so.

The strain from high rents is compounded by the fact that in many markets, purchasing a single-family home is no less expensive than renting for first-time buyers. That likely explains why 44% of renters who said they are less likely to buy cited high home prices as the reason. Other significant deterrents cited were increased mortgage rates (32%) and an inability to save enough money for a down payment (29%).

While both rents and home prices have been rising, they're not increasing as dramatically as they were in some markets.

Single-family rent increases were a little less steep in CoreLogic's most recent monthly report, which recorded a 13.4% increase year-over-year on Tuesday.

"While the annual growth in single-family rents is nearly double that of a year ago and is still near a record level, price growth began decelerating in June," said Molly Boesel, principal economist at CoreLogic, in a press release. "Nationwide, both year-over-year and month-over-month growth were slower in June than they were earlier this year, and roughly half of the largest U.S. metro areas experienced a slowdown in annual growth in June."