Against the Department of Housing and Urban Development's wishes, a House committee has cleared legislation that would raise the loan limits on government-insured multi-family housing loans in high cost areas such as Boston, New York, Los Angeles and San Francisco.

With the ability to raise the ceiling on apartment mortgages insured by the Federal Housing Administration in certain areas, HUD will be able to expand the program to communities where it is now ineffective because of high construction costs.

FHA Commissioner John Weicher had asked the housing subcommittee to wait until the agency finished a study to see if such increases are justified. But the panel wouldn't wait, approving the bill by Rep. Gary Miller, R-Calif., by a voice vote without amendments. And yesterday, the full commitee concurred.

The FHA Multifamily Loan Limit Adjustment Act of 2003 would permit HUD to raise loan limits in high-cost areas from the current level of 110 percent up to 170 percent above their base loan limits.

"Raising multifamily loan limits in high-cost areas is important because there are markets where construction costs are so high that the current loan limits are insufficient. This makes it difficult or impossible to use the FHA program, especially in high-cost markets, such as my district, where construction costs are significantly higher than in other areas of the country," Miller said.

HUD Assistant Secretary Weicher testified that the major barrier to building affordable multi-family houses in expensive places is not the loan limits but finding suitable sites and regulatory barriers. But Miller, who was a developer before coming to Washington, argued that the FHA Commissioner's reasoning was faulty.

Miller's 42nd District in California includes parts of Los Angeles, Orange and San Bernardino Counties.

Both the Mortgage Bankers Association and the National Association of Home Builders support higher loan limits.

Calling the bill the "final step" in updating the FHA, the MBA testified that the current maximum multi-family mortgage limits are not high enough and continue to constrain new construction and substantial rehabilitation in many urban and suburban areas.

"Without higher FHA multi-family loan limits in high-cost markets, critical housing needs will go unmet," said Linda Cheatham, senior vice president of Berkshire Management Finance on behalf of the MBA. "Low and moderate-income families, including important community and public service providers like teachers and police officers, will be denied the affordable rental housing they need."

Speaking for the NAHB, Casimir Kolaski, a Providence, R.I.-based consultant for developers of affordable rental housing, told the subcommittee it is extremely difficult for builders to stay below the current qualifying threshold for an FHA-insured apartment loan.

He said one of his clients will have to pay $133,000 per unit in construction costs to build a new addition to an existing elderly housing apartment building in Providence. Although modestly priced for the area, the project would not qualify for an FHA loan.

"High-cost areas continue to suffer from the lack of access to the FHA multi-family mortgage insurance programs," said Kolaski. "With unemployment rising and wages not keeping pace with rising rents, it's especially important that the program be available to provide much-needed affordable housing to our cities' working families and individuals. There are few, and oftentimes, no alternatives in the market available to them."

Boston-area builder Gary Ruping, who is in the planning stages of developing a 180-unit, garden-style walk-up apartment in the greater Boston area, told the subcommittee his project will cost $176,000 per unit, far in excess of the current high-cost FHA loan ceiling. Twenty percent of the units are earmarked for senior citizens with incomes up to 80 percent of the area median.

"I have struggled to find ways to save on construction costs and have already reduced my budget by $2 million," Ruping said.

If Ruping cannot fund his development with an FHA-insured loan, he plans to sell the land to another developer who "will build a luxury, high-end apartment or condominium because this market can support such a development. The community will lose the opportunity to provide quality, affordable rental housing for seniors and families."

According to several studies, economic growth over the past decade has actually served to exacerbate the nation's shortage of decent, affordable housing as rent increases have surpassed renter household income growth. Also, a decreasing supply of low-cost housing and an increase in the number of low-and moderate-income households has made the lack of affordable housing a critical issue in many parts of the country.

Published: July 25, 2003

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