Changing the use of administrative offices to residential units in America – Tejaratnews
According to Tejarat News, the crisis of “high level of housing prices” and “pressure of rent demand” has also arisen in the United States, but the American authorities have not resorted to “government housing” to curb this situation. “Action for affordable housing” has been approved. The details of the plan approved by the White House contain 20 axes to take advantage of the “available capacity of the real estate market”, which will introduce a rare model of “change of use” in this country with a set of incentives and exemptions.
As cities across America continue to grapple with a crisis of vacant office space and housing with unaffordable rents, the White House has released a new plan to help property owners convert vacant office space into apartments.
The Biden administration intends to help advance challenging projects by allocating significant financial resources to convert offices in the US into residential units, as well as offering technical assistance.
For example, the Department of Transportation will qualify projects located near public transit hubs for “below-market financing,” which includes millions of dollars in loans. Similarly, the Department of Housing and Urban Development is considering expanding the use of federal housing funds available to state and local governments to include these conversion projects. The White House is also publishing a “Commercial-to-Residential” handbook detailing more than 20 federal programs in six agencies to support the plan. This announcement is published in a situation where the administrative department has gone through exhausting events.
The rate of vacant office units across the country reached its peak in the last 30 years in the second quarter. Downtown Los Angeles’ largest office owner has defaulted on $1.1 billion in loans tied to three of its buildings, as New York warns that the vacancy rate is unlikely to fall below 19 percent by 2026. Demand for office space in San Francisco has increased thanks to artificial intelligence, but that’s a rare bright spot. In the U.S. housing market, rents have declined in several markets, but remain near record highs, providing little relief to the affordability crisis that has plagued renters for years. It has especially affected those who can afford to pay less.
The recent announcement reflects the White House’s efforts to increase affordability with a “Housing Action Plan.” It seems that changing the use of administrative offices to residential units will be the answer to the crises of both sectors. However, these projects will be difficult for several reasons. Office blocks do not meet the legal requirements of apartments; For example, these units cannot qualify for proper bedroom windows. Vacant units are not properly distributed in different areas of the city, and the most damaged buildings are usually located in the central areas of the city, where facilities such as grocery stores and restaurants are less. The White House’s goal is to make it financially acceptable to convert units for office buildings that have potential. According to Transportation Secretary Pete Buttigieg, urban centers are usually located near public transit, which puts office corridors within their reach. To that end, the department has published guidelines for cities, states and developers to take advantage of its two flagship programs for land-use conversion projects, which have combined to provide more than $35 billion in loans.
The new guidelines also allow transit agencies to transfer properties at no cost to local governments and developers for affordable housing development, Buttigieg said. The government’s goal is to make the most of this opportunity so that units near transportation can be converted more easily so that not only the cost of housing for citizens is reduced, but often the cost of transportation is also reduced. Transportation costs are often the second largest expense in the consumer basket of low-income Americans, second only to housing. The US Department of Housing and Urban Development, in turn, will make the conversion of units eligible for direct funding under the “Social Development Program”.
The Biden administration has so far allocated about $10 billion in grants, which provide flexibility in spending for different purposes and grant recipients.
U.S. housing prices have so far defied many analysts’ expectations, with the 30-year mortgage rate averaging 8 percent, the highest rate in two decades, little changed in recent weeks. After a brief and weak decline earlier this year, the S&P Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas in the United States, has resumed its upward trajectory; Even as the yield on the 10-year U.S. Treasury note has reached levels not seen since 2007. With the benchmark bond now moving toward “higher interest rates for longer,” the question arises as to whether the housing market How long can America withstand the pressure of more expensive financing? An analyst at investment bank Morgan Stanley told Bloomberg that if interest rates don’t come down soon, given the sharp drop in affordability, home prices are unlikely to rise much further. And given a combination of structural and cyclical factors that keep inventory tight, prices may only fall marginally.
The impact of higher rates has slowed
The average 30-year mortgage rate in the U.S. has risen to 7.89 percent, according to data from financial services firm Bankritt, but that doesn’t mean everyone is paying the same rate.
One of the reasons U.S. home prices have so far resisted rising interest rates is that many homeowners took out lower-rate mortgages before the Federal Reserve began raising interest rates in an effort to curb inflation. had done Morgan Stanley analyst believes that the effective interest rate for mortgages in the United States is around 3.6% to 3.7%. On the other hand, the base rate is approaching 8%, and this is a huge gap that we are witnessing at this point in time.
An increase in price means less demand
While multi-year homeowners may not feel the impact of higher rates, rising mortgage costs have a major impact on those looking to buy these days. Due to the fact that borrowing to buy housing becomes more expensive, the demand for buying housing also decreases. According to the Morgan Stanley analyst, one of the distinctive features of the American housing market in 2022 has been the decrease in affordability; Annual changes have been three times worse than during the Great Financial Crisis. If mortgage rates were to remain near 8% for much longer, affordability would erode to a level not seen in decades.
As prices have remained stable even as mortgage rates have risen, the amount of loan repayments new buyers must pay has increased. According to the data of Morgan Stanley Bank, the monthly installment payment of an average-priced house increased by 27% last year and reached more than 2,000 dollars per month. This means that demand is weaker, and if rates are to remain high, demand will remain low.
Less supply at higher rates
Weak demand means that little supply is needed to help maintain housing prices. Of course, this is where the “lock-in effect” of people with cheap mortgages and no incentive to move comes into play; A problem that helps keep the number of homes available for sale limited.
According to Morgan Stanley analyst, multi-year home sales have declined more than twice as fast; If worsening affordability is included, the decline in multi-year home sales has occurred more than twice as fast as during the Great Financial Crisis. The start of construction of villa residential units has also decreased by more than 20% compared to its peak in April/May 2022. However, the important point is that most of the “lock-in effect” of mortgage rates happened when the loan rate changed from 3% to 7%; In this way, the final impact of the increase from 7% to 8% will be lower. The U.S. housing shortage means that consumers may be experiencing homes differently than before. After the housing bust of 2007, many homeowners defaulted on their mortgages because they couldn’t make their monthly payments. However, in 2023, with housing prices still near record highs and the cost of renting rising, there are signs that Americans are paying particular attention to preserving their home equity. According to Morgan Stanley analyst, mortgage delinquencies will continue to increase, and this increase is much higher than expected. But what happens is that these borrowers want to protect the equity they have in their home. They are looking to keep their housing costs and home financing costs very low, and these may lead to a shift in payment priority towards mortgage payments.
It all comes down to supply
Considering the pressure that has been placed on the affordability of Americans and the high loan rates, the big variable is on the supply side. But what will cause supply to increase significantly is unclear. Homebuilder confidence is falling again, hitting its lowest level since January. Meanwhile, there is a large group of homeowners who are basically inflexible owners and for whatever reason seem unlikely to want to sell. From 1980 to 2012, 25% of all homes were owned by people aged 65 and over. Today, this figure has reached 33%. In theory, an economic downturn accompanied by job losses could lead to more sellers being forced to sell. But even there the impact is ambiguous; This is because after the Great Financial Crisis, with housing prices falling and mortgage defaults increasing, a complete infrastructure was created for mortgage reform to prevent foreclosures. So, Morgan Stanley’s analysis is that while it’s not clear what will drive a meaningful increase in supply, the key variable now is price. There needs to be a tremendous focus on low inventory as well as low supply, as growth in supply for any reason leads to lower housing prices.
Source: World Economy