The Federal Housing Administration announced Thursday it is increasing the threshold for large multifamily loans for the first time in a decade.

With crisis-level inventory shortages plaguing the housing market, the National Association of REALTORS® praised the Federal Housing Administration’s decision Thursday to increase the loan threshold for large multifamily development projects, which could help spur supply around the nation. The threshold is jumping from $75 million to $120 million—the first increase since 2014.

“The real estate market looks drastically different than it did almost 10 years ago, and this increase reflects the changes in the market and the need to speed up and encourage multifamily rental development,” NAR President Kenny Parcell said in a statement. “NAR advocated for this specific adjustment to the threshold dollar amount just last year, and we commend the FHA for stepping up to make this long-overdue and common-sense change.”

The FHA also announced Thursday that it is implementing a process to review and increase the threshold annually in increments of $5 million, if warranted. The FHA’s loan changes also are designed to simplify the underwriting process for multifamily housing development.

“We know that borrowers are contending with the dual challenges of increased development costs and meeting the nation’s dire need for more rental housing,” Federal Housing Commissioner Julia Gordon said in a statement. “Anything we can do to prudently alleviate extra steps in obtaining FHA insurance will help all of us meet the housing supply challenges before us.”

In November 2022, NAR, as part of a coalition of housing groups, sent a letter to the FHA requesting an increase to the agency’s threshold for large multifamily loans. In the letter, the housing groups said the current loan limit did not adequately reflect rising costs and was not attractive to developers.

Apartments provide housing for 19.4 million U.S. households, contribute $3.4 trillion annually to the economy and support 17.5 million jobs. “The supply shortfall of multifamily housing is inadequate to meet the nation’s housing needs,” the letter reads. The U.S. needs to build 4.3 million additional apartments by 2035 to meet the demand for rental housing, according to data from Hoyt Advisory Services.

The FHA’s increase to its loan threshold will “create greater flexibility for lenders and facilitate the creation of more rental housing across the country,” Parcell says.