Freddie Mac finds climate change compounds affordable housing woes

Luke Sharrett/Bloomberg

Climate change-related natural disasters are disproportionately damaging affordable housing, and efforts to address the concern have been fragmented, Freddie Mac found in a study undertaken in line with its Duty-to-Serve plan.

The concentration of low-income individuals living in flood-prone areas (16%) is greater than their representation within the population as a whole (15%), the government-sponsored enterprise noted, citing data from New York University’s Furman Center. The disparity is even greater for the 10% of census tracts, which are high-poverty areas. Fifteen percent of these are flood zones.

That means that low-income individuals are being disproportionately affected by disasters over the last 10 years. As a result of these events, more than 5,000 have lost their lives, 232,000 per year have been displaced, and damage has exceeded $800 billion, the study noted, citing U.S. figures from Switzerland’s Internal Displacement Monitoring Centre and the National Oceanic and Atmospheric Administration.

These individuals also tend to be apartment tenants who are Black, Indigenous or People of Color and additionally may be facing strain related to rising rents and disproportionate impacts from the pandemic — all of which are concerns subject to consumer protections. That makes it particularly important for multifamily servicers to note the disaster-related public and private assistance identified in Freddie’s report, and how it could be strengthened.

“Stakeholders in both the public and private sector have been working to increase the resiliency of affordable properties and tenants who live in them, though there is still a disconnect on which efforts can be combined to achieve the greatest impact,” Freddie Mac said in the report.

Of note to mortgage servicers with lending arms or partners is what Freddie identifies as the potential to participate in what could be a growing market for financing that could help protect apartment buildings from disasters.

“Private market financial institutions have the opportunity to redesign and scale the market by integrating performance-based retrofit financing into their normal loan offerings and programs,” the report stated, adding that this is a market banks, community development financial institutions, and other lenders are starting to enter.

Various public programs are also available for this purpose, such as those available through state-level commercial Property Assessed Clean Energy programs and through low-income housing tax credits. However, these have their limits.

PACE financing lacks a national standard and is not available in all states, with 38 authorizing it but only 26 currently running operational programs, Freddie noted. Just 7% of this funding has been used for resiliency projects so far, according to an estimate from stakeholder group PACENation cited in the report.

Federal low-income housing tax credits, which get allocated to developers through state housing finance agencies, are subject to the priorities in their jurisdiction’s Qualified Allocation Plan. While the number of states that have prioritized resiliency projects has grown, just 24 currently have disaster mitigation, preparedness or recovery provisions, according to data from American Planning Association data cited in Freddie Mac’s report.

Other programs that can help within certain local limits include community block grants available from the Department of Housing and Urban Development for disaster recovery and mitigation. HUD also has a “green and resilient retrofit program,” and the Federal Emergency Management Agency offers some assistance, subject to budget allocations.

Overall, Freddie Mac finds that while it may not be possible to set national policy in this area, more coordination between providers of existing programs could improve the resiliency of properties as climate change elevates the risk of property damage from disasters.

“Maximizing the resiliency of multifamily properties effectively is not something that can be done unilaterally; it requires collaboration, incentivization of private market stakeholders and agreement among public policy advocates and private market investors,” the study concluded.