Federal housing policy in the 21st century needs to strike a better balance between homeownership and renting, to foster ownership opportunities for families who are financially and emotionally prepared for homeownership, but which also encourage more development of rental housing that is appealing and affordable to moderate-income families not yet ready to buy, and which is accessible to housing experts speaking at ULI’s 2010 Fall Meeting in Washington.
J. Ronald Terwilliger, founder of the ULI Terwilliger Center for Workforce Housing and chairman emeritus, Trammell Crow Residential; Henry Cisneros and Steve Preston, both former secretaries for the U.S. Department of Housing and Urban Development; Bart Harvey, former chairman and chief executive officer of Enterprise Community Partners, shared their thoughts on how federal housing policy might be reshaped following the recession during a panel moderated by Thomas S. Bozzuto, Sr., president and chief executive officer of The Bozzuto Group. All the participants are members of the ULI Terwilliger Center Advisory Board.
Going forward, it is highly unlikely that the federal government’s involvement in the residential mortgage market will be as extensive as it currently is (approximately 90 percent of the home mortgages now available are provided from Fannie Mae, Freddie Mac or the Federal Housing Administration), panelists said. However, some federal role, particularly in insuring mortgage financing, will be necessary to supply the type of market stability that makes residential mortgage financing accessible to moderate-income, credit-worthy buyers.
Although the restructuring of mortgage suppliers Fannie Mae and Freddie Mac is still to be determined, Preston suggested that both entities could work effectively if privatized, with the federal government serving as their “catastrophic backstop,” with layers of protection in place to cushion taxpayers against losses incurred the entities. Any restructuring must occur in an environment with more clarity regarding federal housing policy, rather than the environment of uncertainty, which leads to piece-meal, stop-gap measures, he said.
The panelists pointed out that the housing issues faced by American families go farther than access to mortgage credit, stretching into areas such as the persistent shortage of affordable housing that is near transit or employment centers. “The private sector cannot address all the housing needs that the population has,” Terwilliger said. The rising housing and transportation costs for families in urban areas nationwide as one area that could benefit from federal involvement, he noted.
According to Harvey, it is a “misnomer” that the home price declines resulting from the housing market collapse have solved the nation’s affordable housing problem. Although home prices have adjusted to a level more in line with consumer incomes, they still remain out of reach in higher-priced areas, he said, leaving the bulk of the workforce with few options in locations that desirable and convenient to jobs.
Harvey suggested that current federal policy remains too biased toward homeownership, with the annual allotment for the mortgage interest deduction totaling as much as four times the amount in federal expenditures for homeless assistance programs. It is the entitlement of society as a whole to help those “who need it most,” rather than targeting the bulk of assistance to those “who need it least,” he said.
Terwilliger noted that while U.S. homeownership reached a historic high of nearly 70 percent during the years leading to the recession, a more realistic target might be a rate of 60 percent to 65 percent. This lower rate – while still high – would reflect the reality that homeownership, while appropriate for many, is not right for all families and should not be aggressively pushed on those who would be better suited for rental situations, he said. “We need to rebalance and rethink (national housing policy),” he said.
Cisneros pointed out that while the homeownership rate was propelled to an unsustainably high level during the economic boom, it is misguided to blame federal homeownership policies for the ensuing bust. “A combination of balanced strategies is the right answer,” he said. “But, throwing out homeownership is the wrong lesson.”