What are the most pressing issues in housing policy today?
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The most pressing issue in housing today is the persistently high unemployment rate. Job loss has helped fuel the foreclosure crisis, prevented households from refinancing their mortgages to take advantage of today’s historically low mortgage rates, contributed to the dramatic decline in home prices and new home construction, and helped make rental housing increasingly unaffordable for low- and moderate-income households. A significant and sustained drop in the unemployment rate—remember it hovered around 4.6% before the financial collapse began in 2007—would work miracles for the housing sector.
Of course, jobs and housing are not separate issues; they are two sides of the same coin. After all, it was the excessive leverage in the housing market that triggered the financial collapse and the wave of pink slips that followed. And, as Senator Mitchell pointed out during the launch of the BPC Housing Commission, going forward we cannot have a meaningful jobs recovery without improvement in housing. Getting out of this negative feedback loop of high unemployment and a depressed housing sector will take time, patience, and some innovative thinking.
A good place to start is identifying ways to move the large inventory of foreclosed homes off the market into more productive uses. This “overhang” of foreclosed properties continues to depress housing prices, while falling prices put more mortgage borrowers at risk of foreclosure as their home equity dwindles. The Obama administration is currently evaluating proposals on how best to dispose of the tens of thousands of single-family real estate owned (REO) properties held by Fannie Mae, Freddie Mac, and the Federal Housing Administration. Encouraging private investment in these homes, and perhaps transitioning them to rental properties, has the potential to help stabilize housing prices and give some hard-hit neighborhoods a much-needed lift. Let’s hope the Obama administration puts forth some creative and practical ideas on this subject.
The most critical longer-term issue is the ultimate disposition of Fannie and Freddie, the two mortgage giants now owned and operated by the federal government. Sure, there has been a lot of discussion in Washington about reforming the housing finance system, but to date there has been very little consensus on some key questions: How do we ensure that creditworthy borrowers continue to have access to affordable mortgage credit? How can we best bring back private capital to the housing finance market? Should the federal government continue to play a role as an insurer in the secondary market for mortgage-backed securities? If so, how do we minimize risk to the taxpayers? Getting the answers right to these questions will determine whether we have learned any lessons from the past four years of hardship and heartache for so many American families.
Dennis Shea is the founder and principal of Shea Public Strategies LLC.
Welcome to the BPC Housing Commission expert forum! This forum is intended to foster interactive and substantive discussion about pressing housing issues. Each month contributors from different parts of the housing sector will be invited to respond to a discussion topic. Guest posts will feature prominently on BPC’s website, as well as be shared regularly with Housing Commissioners to help inform their work.
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