Finance

$40 billion of COVID-19 aid unlocked to build affordable housing

Published

1 year ago

April 1, 2024

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Teachers and other essential workers could get a break under expanded rules for affordable housing, according to a recent Treasury note. (iStock)

To boost affordable housing projects, the U.S. Treasury Department plans to ease state and local government access to unspent COVID-19 funds.

The Department said it will update rules to allow state and local governments with remaining resources to use those funds on eligible housing projects, according to a recent statement. It has also expanded eligibility to support housing projects serving families earning up to 120% of the area’s median income, a revision from 65% previously.

State and local governments may also use unspent money to fund Fannie Mae and Freddie Mac-supported affordable housing projects for teachers, firefighters, nurses and other workers, which are increasingly priced out of specific markets.

According to a Reuters calculation, this move could unlock as much as $40 billion in unspent money from the $350 billion State and Local Fiscal Recovery Fund. The funds are part of the American Rescue Plan Act (ARPA) — a $1.9 trillion stimulus package meant to speed the country’s recovery from the public health emergency. ARPA stipulates that all state and local fiscal recovery funds must be invested in housing supply before the obligation deadline at the end of 2024, and funds must be fully expended by the end of 2026.

“Allowing state and local governments to spend unused COVID funding on affordable housing will have a remarkable impact on America’s low-income workers,” Justin Lundy, CEO of the audible real estate listing service Lundy said.

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More affordable housing initiatives planned

President Biden has called on Congress to invest more than $175 billion in affordable housing initiatives, according to a White House statement.

The administration has proposed using some of the funds to build and maintain millions of affordable homes for rent and ownership, such as accessory dwelling units and manufactured housing, and to incentivize state and local governments to reduce barriers to affordable housing development.

The Biden administration has also proposed a new Neighborhood Homes Tax Credit. The proposed federal initiative would enable better affordability for home buyers by injecting $16 billion for adding more housing stock to the market and $10.1 billion for down payment assistance. The tax credit would be provided on the condition that low- or middle-income homeowners occupy the home.

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New tax credit could improve housing supply

Biden has also called on Congress to create legislation giving a $10,000 tax credit to first-time homebuyers and those who sell their starter homes. The credit would be spread over two years and credited as $400 monthly payments.

The tax credit would be equivalent to reducing the median home’s mortgage rate by 1.5 percentage points over two years. Over the next two years, it could help more than 3.5 million middle-class families purchase their first home. Expanding the credit to those who buy their second home could also help improve the housing supply for those in the starter home market.

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Finance

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Published

5 hours ago

June 6, 2025

Business Finance News

Finance

Swiss government proposes tough new capital rules in major blow to UBS

Published

7 hours ago

June 6, 2025

Business Finance News

A sign in German that reads “part of the UBS group” in Basel on May 5, 2025.

Fabrice Coffrini | AFP | Getty Images

The Swiss government on Friday proposed strict new capital rules that would require banking giant UBS to hold an additional $26 billion in core capital, following its 2023 takeover of stricken rival Credit Suisse.

The measures would also mean that UBS will need to fully capitalize its foreign units and carry out fewer share buybacks.

“The rise in the going-concern requirement needs to be met with up to USD 26 billion of CET1 capital, to allow the AT1 bond holdings to be reduced by around USD 8 billion,” the government said in a Friday statement, referring to UBS’ holding of Additional Tier 1 (AT1) bonds.

The Swiss National Bank said it supported the measures from the government as they will “significantly strengthen” UBS’ resilience.

“As well as reducing the likelihood of a large systemically important bank such as UBS getting into financial distress, this measure also increases a bank’s room for manoeuvre to stabilise itself in a crisis through its own efforts. This makes it less likely that UBS has to be bailed out by the government in the event of a crisis,” SNB said in a Friday statement.

‘Too big to fail’

UBS has been battling the specter of tighter capital rules since acquiring the country’s second-largest bank at a cut-price following years of strategic errors, mismanagement and scandals at Credit Suisse.

The shock demise of the banking giant also brought Swiss financial regulator FINMA under fire for its perceived scarce supervision of the bank and the ultimate timing of its intervention.

Swiss regulators argue that UBS must have stronger capital requirements to safeguard the national economy and financial system, given the bank’s balance topped $1.7 trillion in 2023, roughly double the projected Swiss economic output of last year. UBS insists it is not “too big to fail” and that the additional capital requirements — set to drain its cash liquidity — will impact the bank’s competitiveness.

At the heart of the standoff are pressing concerns over UBS’ ability to buffer any prospective losses at its foreign units, where it has, until now, had the duty to back 60% of capital with capital at the parent bank.

Higher capital requirements can whittle down a bank’s balance sheet and credit supply by bolstering a lender’s funding costs and choking off their willingness to lend — as well as waning their appetite for risk. For shareholders, of note will be the potential impact on discretionary funds available for distribution, including dividends, share buybacks and bonus payments.

“While winding down Credit Suisse’s legacy businesses should free up capital and reduce costs for UBS, much of these gains could be absorbed by stricter regulatory demands,” Johann Scholtz, senior equity analyst at Morningstar, said in a note preceding the FINMA announcement.

“Such measures may place UBS’s capital requirements well above those faced by rivals in the United States, putting pressure on returns and reducing prospects for narrowing its long-term valuation gap. Even its long-standing premium rating relative to the European banking sector has recently evaporated.”