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Does the U.S. Have the Right Balance in Housing Policy?

Monday, September 22, 2014

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Long-term interest rates may be a near record lows, and international markets have done U.S. markets a favor by conspiring to keep U.S. rates even lower as their central banks are behind the Fed in moves, but despite very favorable rate conditions, many American families are still feeling the squeeze when it comes to housing affordability. Surveys suggest the demographic trends and economic challenges are shifting attitudes around homeownership.

According to research sponsored by the MacArthur Foundation presented at the Bipartisan Policy Center (BPC) 2014 Housing Summit, the housing crisis continues to affect the attitudes of the American public toward housing. How that will affect future policy moves remains to be seen but to be sure, the changing dynamic, which as BPC Housing Commissioner J. Ronald Terwilliger pointed out, includes 5 million American who have moved from ownership to rentals, was felt within the context of the BPC Housing Commission deliberations.

“The biggest sticking point,” former Senate Majority Leader and BPC Housing Commission Co-Chair George Mitchell explained in opening remarks Monday morning “was around what it means to strike a balance between rental and home ownership.”

Rebecca Naser of Hart Research Associates who conducted the study on behalf of the MacArthur Foundation, said that “most Americans still aspire to own a home one day, but [they see] through their research there is sort of a chipping away at the public confidence that housing is the way to build wealth through home ownership.” Naser said the research shows, “The appeal of renting is increasing at same time the appeal of homeownership is decreasing.”

Richard A. Smith, BPC Housing Commission member and chairman and CEO of Realogy Holdings Corp. who in 2014 was named the Most Powerful Person in Residential Real Estate Brokerage, believes the focus on current attitudes should not be interpreted to mean they will extend past this current, albeit extended cycle. “We are currently in a pause. Given the depth of the trough it is impossible to recover overnight. It is probably the 3rd inning of a long game, but we are recovering. We are having a recovery in spite of bad economic policy and high unemployment and difficult regulatory environment. There is a fundamental recovery underway…Millennials are renting right now because they don’t have any options. They will rent. They will eventually own, and eventually rent again.” Smith concluded, “We aspire to be homeowners and we will, it will just be under a different time frame.”

There appears to be consensus on the panel that featured three BPC housing commissioners, that more could be done to address the shortage of rental properties which has driven up rental prices and affordability for average American. Ingrid Gould Ellen, New York University, Robert F. Wagner Graduate School of Public Service, said there is “No sign that rental afford pressures are abating. This is a multi-decade issue. In 1975, 40% of Americans paid half of their income on rent. Today, that number is 70 %.” “We really need to come up with new ways to serve a broader set of households. We also need to figure out ways to get more rental housing being built.”

The issues and the balance are interconnected, as the reduced housing supply will affect demand for rental units. Smith says we are building 1.2 million homes when we need 1.5 million. In 2005 that number was close to 2 million. Ultimately, he argues, we will get back to normal although he believes the ownership rate will be lower given that homeownership rate for Hispanics is in the mid 40s. “A whole lot of people who don’t have assets and income to be homeowners,” said Smith. “In context of comprehensive tax reform a lot can be done.”

Terwilliger, Trammel Crow Residential Chairman Emeritus suggests there is a balance and we should not overshoot. “In 1964 about 64% homeownership, until 1994 and 1995, unfortunately we pushed it too far, to 69.2%. Now we are at 64.2%. Demographics are changing significantly.”

Terwilliger said we spend $200 billion on federal housing subsidies. Referring to the BPC Commission, he said “We had a lot of spirited debates and, at least in terms of housing finance reform, the report became the basis for legislation.” Nevertheless, Terwilliger appears less than sanguine about the prospects of new policies either way. “The federal government has shown very little interest in trying to regulate housing where people live. It goes way back to the 1930s when land use decisions were given to states. We hoped there might be carrot and stick, but Congress seems agnostic to the whole problem we have with housing these days. It is not something that Congress is ready to talk about.”