To boost affordable housing projects, the U.S. Treasury Department plans to ease state and local government access to unspent COVID-19 funds.
The Department said it will update rules to allow state and local governments with remaining resources to use those funds on eligible housing projects, according to a recent statement. It has also expanded eligibility to support housing projects serving families earning up to 120% of the area's median income, a revision from 65% previously.
State and local governments may also use unspent money to fund Fannie Mae and Freddie Mac-supported affordable housing projects for teachers, firefighters, nurses and other workers, which are increasingly priced out of specific markets.
According to a Reuters calculation, this move could unlock as much as $40 billion in unspent money from the $350 billion State and Local Fiscal Recovery Fund. The funds are part of the American Rescue Plan Act (ARPA) — a $1.9 trillion stimulus package meant to speed the country's recovery from the public health emergency. ARPA stipulates that all state and local fiscal recovery funds must be invested in housing supply before the obligation deadline at the end of 2024, and funds must be fully expended by the end of 2026.
"Allowing state and local governments to spend unused COVID funding on affordable housing will have a remarkable impact on America's low-income workers," Justin Lundy, CEO of the audible real estate listing service Lundy said.
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President Biden has called on Congress to invest more than $175 billion in affordable housing initiatives, according to a White House statement.
The administration has proposed using some of the funds to build and maintain millions of affordable homes for rent and ownership, such as accessory dwelling units and manufactured housing, and to incentivize state and local governments to reduce barriers to affordable housing development.
The Biden administration has also proposed a new Neighborhood Homes Tax Credit. The proposed federal initiative would enable better affordability for home buyers by injecting $16 billion for adding more housing stock to the market and $10.1 billion for down payment assistance. The tax credit would be provided on the condition that low- or middle-income homeowners occupy the home.
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Biden has also called on Congress to create legislation giving a $10,000 tax credit to first-time homebuyers and those who sell their starter homes. The credit would be spread over two years and credited as $400 monthly payments.
The tax credit would be equivalent to reducing the median home's mortgage rate by 1.5 percentage points over two years. Over the next two years, it could help more than 3.5 million middle-class families purchase their first home. Expanding the credit to those who buy their second home could also help improve the housing supply for those in the starter home market.
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