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What HUD’s New Ruling Proposal Means for Affordable Multifamily Housing

November 28, 2016 Elizabeth Francisco
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Digital connections are vital for success in the modern world. Access to internet has become so ingrained in societal function that those without that access can be at a significant disadvantage. Connectivity is a fundamental for work, school, and even future success — over 90% of college applications are now filed online. Yet families with a median household income of $34,800 are five times less likely to have broadband access than those in the upper fifth of median household income per the Center for Public Integrity.

 

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This “connectivity gap” has been viewed as a lingering problem for groups living in poverty, which is why the Department of Housing and Urban Development (HUD) recently proposed a new rule seeking to expand broadband access. Under the new proposal, HUD would require that any new or rehabilitated multifamily housing receiving HUD funding must install broadband infrastructure so long as the costs do not exceed 75% of replacing the entire electrical system. The proposal is merely foundational in the quest for bringing connectivity to low-income neighborhoods, but it does leave a lot of open-ended questions for affordable multifamily developers.

 

Limited Costs

In the twelve page proposal, HUD acknowledges it does not have substantial numbers discussing the costs of the proposal, calling them merely qualitative. This may give pause to some affordable multifamily providers, but there are a few major aspects to know from the proposal. First and foremost, compliance only applies to projects not yet approved for funding or without established budgets, meaning developments approved or in progress are off the hook.  

Second, the proposal only calls for the addition of broadband infrastructure — meaning groups are not required to provide subscription to internet service (even at a cost) to residents, they’re merely required to have the connections to make connectivity possible. As these broadband services can be a steep on-going cost, this offers a certain level of relief for affordable housing providers. Furthermore, HUD is not mandating rehabilitation of properties or new construction to meet these needs, therefore, any decision to do so is solely with the property owners. In these aspects, the impact on much of the industry can be expected to be limited.

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However, given the range of “broadband infrastructure” covered in the proposal costs are not expected to be significant for those who are looking to build or rehabilitate in the future. Wired connectivity that is run through telephone or cable lines should only cost an additional cable being run through the existing electrical for the project, which HUD estimates at about $200/unit including labor and materials costs. Wireless connectivity is dependent on equipment costs, which vary, thus costs are non-existent to properties, however, due to it’s lack of availability in many areas, properties are expected to choose to wire for wired connectivity.

 

Benefits: Unknown

Similarly to costs, HUD acknowledges the benefits to the proposal are qualitative as well. Given that the proposal does not require the subscription of internet services, impact can be expected to be limited for the majority of residents who many not be able to afford standard ISP costs.  That being said, this does not render the proposal insignificant.

This proposal can be expected to be paired with other HUD initiatives like Connect Home in order to narrow the so-called “digital divide.” While Connect Home does not impact affordable housing developers directly, it is an important trend to be aware of. Active in twenty-eight cities, Connect Home helps to educate low-income residents on digital literacy, and offers high speed internet at low rates to these groups. For developers this program can be an opportunity to offer value to residents of affordable housing units by ensuring they can tap into these resources.

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Statistic taken from Connect Home

While the broadband infrastructure proposal will ultimately impact existing affordable multifamily housing developers minimally, it is significant to note for the future of the industry. As the internet continues to dominate modern life, access will continue to be of concern for groups living in poverty. If nothing else, the proposal brings awareness of significant future endeavors for HUD, meaning affordable housing providers should be prepared for more initiatives to follow.

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