Fannie, Freddie, and Mixed-Use Development

Back before the financial crisis hit, conservatives would frequently make some good points about the problems with Fannie Mae and Freddie Mac. Ever since the crisis, you’ve been more likely to hear nutty stuff from the right about how somehow the whole recession is a conspiracy between Fannie, Freddie, and the Community Reinvestment Act. But that nonsense aside, there are still a lot of problems with Fannie and Freddie and I hope that congress will do away with them.

Elana Schor explained last week how they bias development against mixed-use:

(cc photo by dougtone)

(cc photo by dougtone)

Urbanists’ frustrations with Fannie and Freddie stem from a key fact: both mortgage guarantors will not deal in home loans for properties with more than 20 percent of space set aside for non-residential use. Plans for walkable, mixed-use complexes that combine housing, retail, and office space, therefore, are often out of luck.

“Every Main Street in America violates Fannie Mae’s and Freddie Mac’s rigid standards,” CNU President John Norquist said in a statement yesterday reiterating his group’s support for housing finance reform.

With a lot of urban planning issues, I don’t think there’s any realistic free market solution—it really just all comes down to a choice between competing forms of planning. But in this case we really could, and should, just let the market decide. Establishing special government-sponsored agencies that encourage the construction of single-use single-family homes is bad policy, but trying to have the agencies tweak the balance in favor of more urbanist ideas would also be a mistake. This is something we can simply not do, and capital can flow to whatever kind of projects people prefer to build.