A new report by the Millennial Housing Commission confirms what advocates of affordable housing have claimed: More Americans are finding it impossible to find affordable housing. The group, commissioned by Congress, finished its 17-month investigation with a report issued on May 30 that calls for new federal initiatives to build housing for poorer Americans.

Although a significant portion of the report focuses on homeownership initiatives, there are many recommendations of import to the developers and lenders involved in the affordable housing sector. The study recommends that the Federal Housing Administration (FHA) function more like a private corporation and also that the federal government provide subsidies to build apartments reserved for extremely low-income households.

However, it may be some time before Congress considers the recommendations. Between the war on terrorism and mid-term elections, Congress is not expected to take action this session, says Michael Novogradac, partner of Novogradac & Co., an affordable housing consulting firm based in San Francisco. “I think it's a question of building on things next year,” he says.

Advocates of affordable housing say the report proves the need for greater action. In 1999, about 25% of U.S. households, or 28 million families and individuals, spent more than 30% of their income on housing, the government's definition of unaffordable housing. According to the U.S. Department of Housing and Development (HUD), that figure was 17.3% in 1978.

A New Structure for FHA?

Part of the solution, according to the report, would be to restructure the FHA to be more responsive to market conditions. The agency, which in fiscal year 2001 provided more than $100 billion of mortgage insurance for single-family and multifamily properties, would become a wholly owned corporation within the HUD. It would not be privatized, but would have its own CEO and board.

Bud Malone, president of Dallas-based Malone Mortgage Co., a lender that deals heavily in FHA-insured loans for affordable multifamily properties, says such a restructuring could decrease the time it takes the FHA to decide if it will back a loan.

According to Malone, until a new system was introduced two years ago, it could take 18 months for the FHA to approve a loan for a 200-unit project. The process now takes about nine months. “That's still longer than it should be,” he says.

The commission also recommends a full subsidy for the construction of apartments reserved for extremely low-income households, meaning those that make at most 30% of the area median income. The report does not recommend a specific funding level, however.

Malone says the subsidies would increase developer interest in such projects. However, “if you add up the building costs, it's inconceivable to me that there would be any significant appropriation,” he says.