Lawler seems to be on the same page as Hill, and that’s good news. He told Politico that housing is “one of the most fundamental issues we need to deal with as a country.” Even better, it seems both Hill and Lawler recognize that most federal housing programs are “demand-related and not supply-related,” whereas many of the supply-related reforms that would benefit housing affordability have to occur locally.
Housing markets are always supply-constrained, putting upward pressure on prices. It often takes more than 12 months to build a new house or apartment building, and well-established neighborhoods generally don’t have much land available for new construction. Federal policy tends to exacerbate this upward pressure on prices by boosting demand.
Providing downpayment grants and subsidized mortgage insurance, for instance, only makes it easier for more people to bid against each other for the same limited number of houses. For the most part, federal housing policies make it easier to go into debt, not to become a homeowner.
And while members will need to have many difficult conversations to improve federal housing policy, the current framework is so bad that some of the toughest questions can be put on hold.
It should be easy, for instance, to agree that assistance to first-time home buyers should not be given to people who have purchased a home in the last 3 years. Just that simple change would help shrink the role of the Federal Housing Administration, thus removing some of the demand-side pressure that makes homes less affordable.
First, Congress can narrow the GSEs’ focus to the financing of primary single-family homes (no vacation homes or multifamily complexes). Next, Congress can revoke the GSEs’ exemption from requirements to register their securities offerings under the Securities Act of 1933. Finally, Congress can force the Federal Housing Finance Agency to enforce the “excessive use” provision in Fannie’s and Freddie’s charters. (Both charters require “the volume of the Corporation’s lending activities” to be small enough to “reasonably prevent excessive use of the Corporation’s facilities,” but no regulatory agency has ever enforced this provision.)
Congress could also cap the GSEs’ loan limits so that no support is given to homes worth more than $1 million. It’s easy to keep going here recommending no support for investment properties and cash out refinancing, as well as for those who earn above-average income, but there’s no need to get carried away with GSE reform proposals in this column.
Naturally, reducing federal housing assistance to those Americans in the lowest income groups will be more difficult than these other reforms, but there are surely some such reforms that will be less controversial than others.
For instance, Congress could place a time limit or a lifetime benefit cap on the amount of Section 8 housing assistance for able-bodied adults. Separately, changing the tenant rent calculation so that rental assistance becomes a fixed dollar amount, rather than based on a percentage of income, is one sensible way to provide temporary assistance rather than a lifetime of dependency. And both reforms would improve affordability compared to the current system.
Ideally, Congress would remove the federal government entirely from Americans’ housing decisions. While such a drastic change is surely far off, even very minor sensible changes that would improve affordability have proven politically impossible.
Perhaps Hill and Lawler’s leadership can finally break that impasse. If not, Americans will get more of the same old housing policy instead of one that improves affordability.
