Jeffery Hayward on Facing Down the National Affordable Housing Challenge


Lenders often consider multifamily assets among the safest collateral in commercial real estate lending, but its landscape has turned somewhat more unpredictable than usual this year. New rent-control laws in several states including New York and California have revealed heightened tensions between developers and politicians, and the long-anticipated moment when Fannie Mae and Freddie Mac are severed from their decade-long government conservatorship may also be inching closer. Of course, keeping residential debt markets stable come what may is a mandated priority for the two government-sponsored entities. Jeffery Hayward, who leads Fannie Mae’s multifamily business, gave Commercial Observer an update on those topics this week, on the sidelines of a conference Fannie Mae jointly hosted in Washington, D.C.

Commercial Observer: We’re speaking here at a conference where there’s been a lot of discussion about private companies partnering with public agencies to take both a business-minded and a philanthropic role in affordable housing. How does Fannie Mae work with institutions like that?

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Jeffery Hayward: What we’re really trying to do is stitch together people to talk about the supply issue on many levels. It’s a complex problem and has many, many offshoots. The more people who can hear the story of somebody else somewhere in the country doing something, the more they can take it back to where they are and apply it. [We’re hoping] someone sitting in that audience is going to say, “You know, maybe I should try to turn things around in my city, and maybe a way to solve problems is to scramble things up a little bit and think about a new approach.” That’s what we’re trying to do here.

There’s been a wide range of companies that have taken up these issues, from Google in Silicon Valley to Prudential Financial in Newark. What do you think motivates these companies that are definitely not real estate businesses to pay attention to housing?

Housing is a human story. If you work at Google your job might not be a programmer; you might [work] in a cafeteria. Those people are integral to that company. They have to be there, they have to come to work every day to keep the company running. I think companies like Google are recognizing that they need every person in their chain to be present, to have a lifestyle that enables them to live and feed their kids and all those things, because if they don’t do that, they can’t do the essential work that drives their business. 

More and more companies are catching onto this chain of events that has to happen. Companies can’t say, “Well, that’s not really my problem. They can’t do that anymore.” Because to do that, it really means you’re going to have a struggle later, attracting and maintaining talent. And talent is the game when you’re running your business.

All across the country, in New York, California and Oregon, there’s been a trend towards more stringent rent-control laws this year. How should lawmakers be balancing that equation of protecting tenants while also ensuring developers have the incentive to build more housing?

I really see rent control as a response to an underlying economic problem, which is that the supply isn’t enough. If the supply were enough, rents wouldn’t be as high. It’s basic economics that when you want the price of something to go up, you just limit the supply of it. So I think for local municipalities, the first question has to be, “Are my policies promoting economic development? Will they spark more supply, or spur the renovation of more supply, so that the rent burden isn’t as high?” 

Controlling rent is only a lever, and that doesn’t get you one new unit. Period. And I think if you talk to a lot of people who are in the investment business, they’d say it actually deters you from wanting to put your capital in a place where you can earn a return on it. That’s basic business: You have to be able to earn a return to keep doing something. I think [that] I think rent control is a symptom of a bigger problem: the supply problem.

The Federal Housing Finance Agency just restructured the way Fannie’s and Freddie’s multifamily businesses are capped, switching from a smaller cap with many exemptions to a larger but all-inclusive cap. I’m sure you’re still digesting it, but do you think the change will impact Fannie’s approach to multifamily?

I think the multifamily cap has assured that there will be liquidity for multifamily borrowers in the market at all times. I’m thrilled about that. [The new cap] also sets the floor for how much affordable business Fannie Mae can do. But this is important: It’s a floor. Our job is to do as much of that financing as we can possibly do.