FHA raises commercial space finance cap

Responding to demographic changes expressing market preference for mixed-use developments in walkable, urban areas, FHA recently revised rules that limited the cap of commercial space in mixed-use condo buildings from 25 percent to an updated 35 percent commercial use, with possible waivers for developments with up to 50 percent commercial space. (For full coverage, see “FHA Eases Burdensome Condo Financing Rules” ­— Los Angeles Times, September 23, 2012).

With the action, FHA is recognizing the economic benefits of mixed-use development and taking steps towards aligning federal financing housing policy with the goals of the HUD/USDOT/EPA Partnership for Sustainable Communities. The new rules allow the marketplace more room to develop and deliver the type of walkable, urban product that is in demand in cities and suburbs alike, and sends an encouraging signal to private banks to finance mixed residential/commercial projects as the stigma of mixed-use lessens. As a result of the changes, a greater number of condo developments and thereby potential buyers will be eligible for FHA-backed financing, unlocking hurdles to the continuing housing recovery and allowing the market to meet pent-up demand.

Since 2010, through its Live/Work/Walk: Removing Obstacles to Investment initiative, CNU has been advocating for FHA, Fannie Mae and Freddie Mac to revise the regulations on the amount of commercial space allowed in mixed-use buildings. The recent FHA change not only represents a victory for CNU and its allies, but for the places that more and more people want to live: Connected, compact communities that deliver public health, environmental and economic benefits.