President Trump is a ‘voracious agent of change' and will shake things up at the Federal Housing Administration and elsewhere, said former FHA Commissioner Brian Montgomery. "But what that means for multifamily finance remains unknown," Montgomery said here at the Mortgage Bankers Association's Commercial Real Estate Finance/Multifamily Housing Convention & Expo.
Montgomery, vice chairman of the Collingwood Group, Washington, D.C., a housing policy group, said he sees opportunities on the horizon. "On the plus side, President Trump understands real estate finance," he said. "We've never had a president with real estate expertise. I think you'd agree he understands what a deal looks like."
In addition, the financial services industry can expect that the Trump administration will ease regulation, Montgomery noted. "I want to be optimistic: regulatory relief is in sight," he said. "Gary Cohn, the director of the National Economic Council, said he does not want to burden banks with new regulations."
Montgomery said he was "very optimistic" about the multifamily market in 2017. "We're seeing rising interest rates and a shortage of starter homes," he said, noting that prevailing low interest rates for the last few years have made it hard for many renting families to save for a house down payment. As a result, the homeownership rate stands at a five-decade low.
"Homeownership is now as low as it was when the HUD building first opened [in 1968]," Montgomery said. "It's below what it was at the start of the century, and we've grown by 41 million people since then."
On rental housing affordability, Montgomery observed rent growth has slowed a bit, "but it's still far from declining." He noted that fourth quarter rents stood nearly 25 percent higher than five years ago. "That contributes to millions of renter households being cost-burdened," he said. "Nearly half of all renter households, in fact. In many cases they are struggling to pay rent, never mind saving for a down payment on buying a house."
Montgomery said he would not be surprised to see the Trump Administration push to remove Davis-Bacon Act prevailing wage requirements, which mandate union wages for construction jobs, for affordable housing construction. "Many see that as contributing to higher development costs," he said.
Tax reform represents another Trump Administration priority, Montgomery said. Treasury Secretary Steven Mnuchin has said that he is targeting 3 to 4 percent GDP growth through tax reform and trade policy changes.
"They could lower the corporate income tax rate," Montgomery said. "That might reduce participation in the Low-Income Housing Tax Credit program. "I suspect the new president is very knowledgeable about the LIHTC program and has acquainted himself with the efficiency and effectiveness of tax credits compared to public financing. [Tax credits] utilize the public sector more to provide housing to low- and very low-income families."
Montgomery said Trump may see public housing as an untapped asset. "A good bit of it is considered substandard," he said. "Compare the public housing stock to project-based Section 8 housing. You can also see a solution in HUD's Rental Assistance Demonstration program, which reinvests in the public housing stock with public and private equity."
Montgomery said he also expects to see an increased focus on risk sharing between FHA and other public and private capital providers to reduce FHA's risk exposure, he said, noting he supports removing the unit cap on rent conversions to "open the door" to financing additional public housing units.
"I think these facts will spark an increase in FHA multifamily production and might be very attractive to the new administration," Montgomery said. "My hunch is that the next FHA commissioner should buckle his or her chinstrap."
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