Street-level stores with apartments above them, like these along Main Street in Ossining, NY, are one example of the type of development current federal regulations restrict.
A growing number of Americans wanting to live in walkable, mixed-use neighborhoods—but arcane federal rules make it unnecessarily difficult to build this type of development. A recent study by the Regional Plan Association, released in partnership with LOCUS: Responsible Real Estate Developers and Investors, highlights how—and what lawmakers can do to change it.
The Unintended Consequences of Housing Finance examines several federal regulations around housing finance that were created in the mid-20th century, and the impact of those regulations on the type of development that gets built in the United States.
These regulations restrict commercial development in federally backed housing loans, the report reveals, greatly limiting the availability of financing for three- and four-story buildings that include both residential and commercial uses. This is despite the fact that more and more Americans want to live in walkable, mixed-use neighborhoods.
“For many decades, we’ve been living with a real estate financing system that favors single-family home ownership in the suburbs,” said Christopher Jones, senior vice president of Regional Plan Association and the lead author of the report. “But today, many Americans are interested in living in places with easy access to stores and services, where cars aren’t needed for every errand or trip to work. The persistence of out-of-date policies is bad for everyone, but it takes a particular toll on lower-income Americans by restricting the supply of apartments and driving up prices for those that are available.”
The rules were developed at a time when loans to commercial properties (such as stores or supermarkets) were seen as too risky to be tied to smaller-scale residential buildings. But development trends have changed, and the restriction on mixed-use housing projects is now constraining the real estate market’s ability to provide what Americans’ increasingly want. Since private lenders typically adopt federal standards, these restrictions have extended beyond federally backed projects.
A range of actions could eliminate or reduce these impediments, the report explains, including raising non-residential caps on loans, allowing alternatives like shorter loan periods or larger down payments to address risk, or creating a secondary market for mixed-use loans, among others.
“By taking steps such as raising or eliminating caps on non-residential development within federal financing, we would be able to better meet demands for walkable communities,” said Christopher Coes, Director of LOCUS, which partnered with RPA on the release of the report. “We hope the Obama Administration will move forward and remove these unnecessary barriers to investing in urban areas, especially in low-income neighborhoods.”
Read more about the findings and the authors’ recommendations in the full report.