Unfortunately, right now, the future of these federal agencies is uncertain at best. Budget-conscious Republicans arriving on Capitol Hill next year will be eyeing the behemoth GSEs, with several plans floating in Congress to rein in their power—everything from shutting them down altogether to turning them into privately capitalized companies with some level of government guarantee to evolving them into multiple, small, privately capitalized entities that would compete with the rest of the private sector. (For more on the possible options facing the GSEs, see “What Might Really Happen?” on opposite page.)
And those changes are already beginning: HUD has made it more difficult for developers to get financing under the 221(d)(4), and, sometime next year, the administration should have a new proposal for Fannie or Freddie. If a new plan has the GSEs no longer supporting the multifamily industry, some fear that financing costs will go up, ultimately causing rental costs to rise. That could suddenly make homeownership more appealing for those who choose to rent. “The availability of financing from Fannie and Freddie allows us to keep rents at a low level,” explains Tom Bozzuto, CEO of Greenbelt, Md.-based real estate firm The Bozzuto Group.
Yet while these programs grease the skids for transactions and financing on the multifamily side, they don’t necessarily stimulate rental demand the way that homeownership programs—namely the Mortgage Interest Deduction (MID) program—stimulate single-family housing. Essentially, MID allows homeowners to reduce their annual taxable income by the amount of interest they paid on their home loan. But MID also has a cost of about $131 billion to the government in lost revenue each year. And with Obama’s deficit reduction task force looking for ways to cut government spending, programs like MID could face intense scrutiny. If home-ownership incentives are cut, they could affect the homeownership rate even further.
“For the deficit hawks, that report [from the deficit reduction task force] will provide an excuse if nothing else to go after the tax deduction,” Bozzuto says. “If you look at it from a point of view of pure economics, you have to say it doesn’t make a heck of a lot of sense that a guy with big income should be able to deduct $1 million of interest, whereas somebody with a modest salary doesn’t get any benefit.”
