Issue Briefing: Design Access for the Middle Class

ISSUE BRIEFING
Small Project Practitioners
A Knowledge Community of the American Institute of Architects

July 14, 2006

Design Access for the Middle Class

Background
The availability of architects' services to improve housing is not evenly available through American society. Lower-income citizens who participate in affordable housing programs get the services of an architect indirectly when they purchase or rent an apartment, townhouse, or single-family home built in a government directed program. The wealthiest citizens have sufficient cash to allow them to secure the services of an architect with cash before a mortgage is written. The middle class is generally unable to secure the services of an architect without jeopardizing their equity contribution to the process as the architects fees are not considered equity. Worse, the fees cannot be amortized into the mortgage as the contractor’s management fees are. Therefore, middle-class homeowners do not have access to sustainable design tailored to their sites and lifestyles.

Analysis
The mortgage policies of bank and other financial institutions is heavily weighted toward compliance with secondary market requirements. The secondary market consists primarily of the FHA, VA, Fannie Mae, and Freddie Mac. These organizations place restrictions on what can be included in a mortgage package that is acceptable to them for purchase. While financial institutions are welcome to write mortgages on any basis they like as long as they do not expect to resell them on the secondary market, the reality of the market is that this is done only in a very small number of cases. The second level of the problem includes educating the financial markets and institutions on a process of home construction that starts with a brief preliminary program for appraisal and includes a fixed cost of design as well as a fixed construction budget as part of the mortgage package. Neither of these items are troublesome for the architect, as industry practice is to design to a budget and many architects are willing to work on a fixed fee basis.

Proposed Solution
The first level of correction is to have the secondary mortgage market address the inclusion of an architect's services and fees in evaluating those mortgages to be bought. This does not require any subsidy to architects and can be revenue neutral concerning government support. The second level is to work with the financial industry to educate and promote better design as a mortgage value and include it in the mortgage process.