How Federal Housing Finance Favors Single-Use Development Over Mixed-Use Development

Image courtesy of the American Planning Association

Image courtesy of the American Planning Association

Federal loan programs supporting new development favor single family-residential development over mixed-use development, according to Regional Plan Association (RPA), a metropolitan planning organization for the New York metro area. As the RPA explains, the Federal Housing Administration, Fannie Mae and Freddie Mac loans, loan guarantees, and mortgages typically cap commercial floor space or income at 15 to 25 percent of multi-family projects. Commercial rent is discounted by underwriting rules designed to reflect risk, compounding the problem.

While many Americans prefer to live in mixed-use areas where they can walk to various amenities, development is not meeting this demand. The mixed use pattern has historically been the most common and should not be placed at a disadvantage by federal housing finance programs.

Recent research on loan performance, according to the RPA, indicates that loans in walkable, mixed-use neighborhoods are less risky than those in single-use, single-family neighborhoods. Thus, updated rules could also reduce loan program costs.

The RPA recommends updating federal housing finance rules that would allow for a greater variety of new development for all types of communities. While some rules have been relaxed, the changes are too small to increase the number of qualifying projects.

Written by Dima Galkin, an Associate at RSG