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- Construction of new apartment buildings is slowing as interest rates stay high.
- The Biden administration is attempting to do something about that by offering new funding.
- The Department of Transportation is opening up billions in loans for construction near mass transit.
Multifamily housing construction boomed over the last couple years, and more apartments are coming on the market than at any time since the 1980s.
But as interest rates have shot up, apartment construction is sharply slowing across the country. Developers are deciding against building as demand slows and rents flatten with all the new buildings hitting the market.
Despite the temporary building boom, the country is still facing a dire shortage of housing, particularly affordable housing for lower-income residents. And the drop in apartment construction predicted over the next couple of years will make that much worse.
So the Biden administration wants to help incentivize developers to get back to building. The administration is opening up lending for multi-family construction in downtowns across the country as part of its new effort to incentivize converting commercial buildings into apartments.
The Department of Transportation is using two lending programs — the Transportation Infrastructure Finance and Innovation Act (TIFIA) and Railroad Rehabilitation & Improvement Financing (RRIF) — to open up about $35 billion in federal cash with below-market interest rates for multi-family construction within a half-mile of mass transit stations. DOT staffers say the loan programs are underused and they want developers to take advantage of the new offerings.
"The grant programs are oversubscribed and the TIFIA and RRIF programs are undersubscribed," Dan Schned, the head of project development at DOT's Build America Bureau, said during an informational Zoom call with builders on Monday.
The subsidized loans will have about a 5% interest rate — approximately the 30-year US Treasury rate — and can be paid back for 35 years with a five year deferment after construction, making them much more affordable than private sector loans. Meanwhile, market loan rates tend to be a few percentage points higher.
The new construction wouldn't just create much-needed additional housing. It would also boost the subways, passenger rail lines, buses, and other mass transit nearby by filling those systems with more riders and increasing revenue. In fact, in order to qualify for the loans, developers need to show that their projects would boost ridership.
"Between public infrastructure and economic development, all of our TOD authorities, one of the emphasis areas for us is the real benefits that these projects can generate for the transit and passenger rail stations or services that they are surrounding," Schned said, referring to transit-oriented development.
It's unclear how quickly or easily developers will be able to access and put these funds to use. DOT noted a few limitations of the two loan programs, including federal requirements like environmental review and domestic sourcing of construction materials, credit rating, and a 12-14 month timeline for approving projects.
The announcement has gotten little fanfare. But some close to the administration have celebrated it.
"This could be HUGE," Brian Deese, Biden's top economic advisor for the first two years of his presidency, tweeted. "I hope DOT works w/developers to scale this quickly."