MCLEAN, VA--(Marketwired - Dec 18, 2013) - New Freddie Mac (OTCQB: FMCC) Multifamily research highlights the growing affordability problem in America of renters spending more of their income on housing than in past decades. Freddie Mac identifies an alternative method that may help target debt capital to needed areas and help lower income individuals get access to affordable housing in most markets.
Freddie Mac analyzed available market data across the country and took a closer look at how affordability is determined based on current rules that use metro-wide Area Median Income (AMI) to determine if a property qualifies as affordable to individuals earning less than the median income for that area, and comparing it to the HUD-developed Small Area Fair Market Rents (SAFMR). The comparison showed that SAFMR could better measure local market affordability conditions and lead to an increase in debt capital in those areas.
"Rental affordability is a growing issue that impacts more households every year because rents are rising faster than incomes," said David Brickman, SVP of Freddie Mac Multifamily. "Our research shows that breaking metropolitan areas into smaller submarkets, such as by zip code, would provide more information about local market rents which could lead to a more refined approach to identifying affordable housing needs."
The Freddie Mac data analysis showed that using the AMI-based rule makes it harder for properties in some markets with high rent to income ratios to qualify for affordable funding despite the acute need in those markets. It also found that using the SAFMR method could increase debt capital from the GSEs to those areas.
The reason is that AMI bases its averages by looking at the broader market, whereas SAFMR breaks down a Metropolitan Statistical Area (MSA) into smaller markets to allow for the vast variances in rents and incomes in different parts of the MSA and surrounding areas.
For example, the Washington, DC, MSA has a diverse economic landscape where median income reflects overall conditions, but does not represent individual areas well. The many diverse localities include Arlington, VA, and Warrenton, VA, which is located about 45 miles from Washington. The average incomes and average rents vary significantly in the three areas, but the AMI method groups them together.
The current AMI approach makes it easier for lower market rent areas like Warrenton to qualify for affordable funding from the GSEs and more difficult for higher rent areas like Arlington to qualify. Using the SAFMR method would determine affordability based on income and rents in each separate, smaller locality, which could lead to more units qualifying as affordable. By looking at these types of issues across the country and inside of specific markets, Freddie Mac Research identifies potential approaches to identifying localities to serve, which will benefit renters in all areas of the country.
Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Today Freddie Mac is making home possible for one in four homebuyers and is one of the largest sources of financing for multifamily housing. www.FreddieMac.com. Twitter: @FreddieMac