The pressure to reduce the federal deficit through spending cuts, uncertainty regarding federal housing finance systems, and dire fiscal straits faced by state and local governments could result in higher housing costs overall for home owners and renters, according to housing experts at a workforce housing forum recently hosted by the ULI Terwilliger Center for Workforce Housing.
The event, held March 7-8 in Orlando, focused on increasing the stock of affordable workforce housing that is near employment centers in urban areas. It included a national housing policy outlook featuring former U.S. Department of Housing and Urban Development Secretary and former U.S. Senator Mel Martinez, now chairman of Florida, Mexico, Central America and the Caribbean region for JP Morgan Chase; Rick Lazio, former member of the U.S. House of Representatives; and ULI Terwilliger Center Founder J. Ronald Terwilliger, chairman emeritus of Trammell Crow Residential. Martinez and Lazio are members of the ULI Terwilliger Center advisory board.
The federal government’s previous focus on raising homeownership (the rate topped 68 percent at the height of the economic boom) is likely to be much more subdued in the future, Martinez noted. Specifically, the home down payment assistance programs championed by HUD years ago “are gone, and they aren’t coming back,” he predicted.
However, Martinez said, reducing this assistance is necessary to help prevent a repeat of the circumstances contributing to the housing boom, in which many consumers not ready for homeownership bought beyond their means. “In the past, with no-down-payment situations, many people found it cheaper to buy than to rent, and they counted on home price increases. But, that is no longer the case,” he said. The current homeownership rate – 66 percent – is now back at the pre-boom level, which panelists agreed more accurately reflects the portion of the population that can realistically afford to purchase homes and stay current on mortgages.
The cutback in down payment assistance and increases in down payment requirements could raise home financing costs for moderate-income Americans by “several thousand dollars,” Lazio said. “[Attaining] homeownership will never be as inexpensive as it was [during the boom period].”
Although Fannie Mae, Freddie Mac and the Federal Housing Administration currently provide virtually all of the mortgage financing available (FHA’s market share is now up to 30 percent), the programs’ unprecedented support will not remain at this level indefinitely, Lazio said. “The government has never played a more significant role than it is now [in terms of mortgage finance], but this is under extreme pressure due to the extraordinary deficit,” he said. “This will affect the housing agenda” for several years, he added.
The likely pullback of federal involvement in homeownership – through the absence of down payment assistance and through more limited mortgage financing – will contribute to an already rising demand for moderate-cost rentals, panelists said. However, they noted, the same deficit concerns affecting the federal homeownership programs are making it equally unlikely that more federal support will be made available for affordable rental programs.
The upshot: More innovation. Terwilliger pointed out that demand for moderate-cost rentals is going to rise significantly, with Gen Y entering the housing and jobs market, and with more baby boomers and Gen Xers renting by necessity or choice. Given the lack of public funds, being able to provide a sufficient number of rentals close to employment, as well as preserve existing units that are affordable, poses a formidable challenge that will require “increased creativity” from both the private and public sector, he said.
Martinez noted that the shift in party leadership in the U.S. House of Representatives has resulted in a corresponding shift regarding the focus on urban-related issues, including housing. read The “overall mix” in Congress has changed, which will affect the approach to national housing policy going forward, he said.
“In the current environment, it will be hard to initiate new programs. Housing has never needed more advocates,” Martinez added.