Restoring the lifeblood to Main Street

Photo courtesy Mark Nichita

Main streets are arguably the most American place. When economists talk about big money finance and multinational corporations, they refer to Wall Street. When they speak of regular Americans, they talk about “Main Street.” Where did George Bailey run his savings and loan? What did Walt Disney build when he wanted to replicate the quintessential American experience?

The answer is a classic American Main Street.

Why, then, did America shut off the lifeblood to main streets? From the 1930s on, financial rules put in place by the Federal Housing Authority (FHA), US Housing and Urban Development (HUD), Fannie Mae, and Freddie Mac discouraged low-rise mixed-use buildings — the very type that comprise main streets.

Caps were put on the amount of commercial space allowed in a building — generally 15 to 20 percent — to obtain financing under federal guidelines. With such rules in place, buildings with two to four stories with first floor commercial space did not qualify for easy financing or sale of loans on the secondary market. Local banks might have financed such construction, but it was considered nonstandard and a higher risk. These loan restrictions undermined existing main streets and obstructed new ones. 

The underlying assumption was that main streets, by their very nature, were risky investments and likely to be blighted. That thinking became a self-fulfilling prophecy. The lack of available finance for construction — coupled with road widenings that sped up traffic and minimum parking requirements that encouraged building demolition to make room for parking lots — meant that main streets eventually did become blighted.

Reforming financial rules

That’s why efforts by the Congress for the New Urbanism (CNU), the National Association of Home Builders (NAHB), the National Town Builders Association (NTBA), and other groups to reform the financial rules are so important. As a result of their efforts, FHA raised its nonresidential loan limits to 35 percent from 20 percent in 2012. Now it looks like HUD is moving forward with reforms in other programs.

Officials from HUD’s multifamily unit recently told CNU President and CEO John Norquist, New York Regional Plan Association executive director Thomas Wright and Richard Oram of the Oram Foundation that further reforms are expected in HUD’s Sections 221d4 and 220 multifamily financing programs, due for release in September 2014.

“What is likely to happen is that HUD 220 and 221d4 caps will be raised up to 35 percent,” Norquist says. “This could vary by project characteristics and location, but allowing up to 35 percent nonresidential is a big deal.” The higher FHA mortgage nonresidential caps have worked, Norquist says.

For now, lower restrictions will remain in place at Fannie Mae and Freddie Mac.

“Fannie and Freddie are harder to change. Their leadership has been in flux and Congress has been considering legislation to either abolish or radically change” these organizations. “It is easier to deal with FHA and HUD because they can make the changes we seek without having to go through Congress to change federal law.”

Changing such rules means that Wall Street can begin to support Main Street — but that’s only one of many reforms needed to restore vitality to town centers. Another critical step will be to change the street standards.

Driving slow is good on Main Street so you can see the shops and wave to the people you know without running them over. Why then do Departments of Transportation classify main streets as “urban arterials” and stipulate lane widths that are the same as those found on Interstate highways, where the average speeds are 70 miles per hour? No cop can prevent speeding on such a street.

The lifeblood of Main Street should be finance — not traffic accident victims. 

Main streets are America’s family rooms – comfortable outdoor places in which to gather. Now that we are restoring the flow of money to rebuild the walls of these rooms, we need to make them safe again. On Main Street, the biggest danger should be Barney Fife shooting himself in the foot.