The Department of Housing and Urban Development has announced plans to reduce its Upfront Capitalized and Annual Mortgage Insurance Premiums (MMIPs) to 25 basis points for all multifamily program categories, a move that marks a significant shift in the agency’s approach to housing finance. The move, according to HUD, is designed to render the Multifamily Green and Energy Efficient Mortgage (Green MIP) “economically obsolete,” signaling a dramatic shift away from incentives for green construction.
The department’s announcement referenced an executive order aimed at reducing the cost of living, as well as another that prioritizes the exploration and production of traditional energy sources, including oil, natural gas, coal, hydropower, biofuels, critical minerals, and nuclear energy. Notably absent from the directive was any mention of solar, wind, or geothermal energy.
Industry experts who spoke with GlobeSt.com generally agreed that lowering the MIPs could offer some incremental benefits. “I think the overall rate reduction levels the playing field by eliminating a lower rate incentive for green construction compared to more conventional construction,” Glenn Brill, managing director in the Real Estate Solutions practice at FTI Consulting, told GlobeSt.com. Brill added that while the move could help mitigate overall development costs and make more dedicated capital available, the process of financing affordable housing remains complex, often requiring multiple sources of capital.
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Still, the consensus is that the impact may be limited. Alvin Schein, partner and co-chair of the NYC Real Estate Tax & Zoning Incentives Practice Group at Adler & Stachenfeld, explained to GlobeSt.com that “annual MIP rates are currently as high as .70% of the mortgage principal. The MIP rate for affordable housing properties is generally .45% of the mortgage principal, except that the MIP for Low-Income Housing Tax Credit (LIHTC) or Section 8 projects is already at .25%. A reduction to .25% across the board will especially help non-LIHTC and non-Section 8 affordable housing properties. However, it’s not a game changer.”
Todd Watkins, co-founder, chief operating officer, and general counsel of RailField Partners, echoed this sentiment in his comments to GlobeSt.com. “It might speed the development of housing a little bit, but not a lot,” he said. “While it might not necessarily create affordable housing, at the end of the day, any new housing makes all housing more affordable.”
Watkins also pointed out that the intended savings from efficiency measures can sometimes be undermined by tenant behavior.
“Sometimes tenants undo the intended savings, such as removing low-flow shower heads and flushing low-flow toilets more often, wasting water those devices were supposed to save,” he noted, adding that RailField had not observed “any appreciable savings in utility costs” after installing such devices.
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