A Phil Hall Op-Ed: You never know what you can find on social media. Today, while taking a break from my duties, I scrolled through a site and found the following post that gave me great amusement.
“We have the highest mortgage rates in a generation and stubbornly high home prices,” the post said. “Homeownership has never been more out of reach for first-time homebuyers. Instead of focusing on so-called junk fees and demand-side tax credits, why isn’t the Biden administration developing a moonshot initiative to increase supply?”
In case you forgot, the last time that Joe Biden’s name was mentioned in the same sentence as the word “moonshot” was eight years ago in the final stretch of the Obama administration when the lame duck president assigned his vice president with the role of engineering a “moonshot” for a cure to cancer. Needless to say, that “moonshot” didn’t go anywhere.
But what about the new “moonshot initiative” that was proposed online to increase housing supply? The person posting that concept saw it as a win-win situation.
“For profit homebuilders are never going to close the supply gap that has been created since the Great Financial Crisis,” the post added. “I think we need the federal government to lead the charge on zoning changes and tax incentives to encourage for profits, nonprofits, and government entities to build, build, build. Perhaps even a national program to build affordable housing modeled after the Public Works Administration of the 1930s?”
Obviously, the person who posted this didn’t know their FDR history – the Public Works Administration was part of the New Deal socialism where the government became the major employer rather than the private sector. But with today’s national unemployment rate of 3.8%, there is no need for a massive government program to put jobless people to work. Also, the housing aspect of the Public Works Administration fell far short of its goals and focused only on public housing projects rather than encouraging homeownership.
Perhaps the author of that cockamamie post might have asked what the builders want. According to Carl Harris, the chairman of the National Association of Home Builders, the last thing they want is more government.
“With many frustrated buyers back on the fence waiting for interest rates to fall, policymakers can help ease affordability challenges by reducing inefficient regulatory rules that raise housing costs and limit supply,” said Harris in announcing today’s builder sentiment data.
Also, federal input on local zoning changes inevitably lead to all sorts of melodramatic and frequently venal accusations by municipal political figures – Ben Carson learned that the hard way when he was running the Department of Housing and Urban Development and sought to implement zoning changes to encourage a less bureaucratic and more efficient approach to housing development approvals.
In an event, we wouldn’t need Washington to bribe builders to “build, build, build” if we had something resembling a normal economy. With mortgage rates rising back to the 7% level, home prices breaking records and Consumer Price Index data that shows Jerome Powell has no idea how to tame inflation, many prospective buyers cannot afford to buy a house and many homeowners who may have considered selling their residences and moving elsewhere know it is financially foolish for them to move out now.
Indeed, the Federal Housing Finance Agency issued a research paper last month that found “for every percentage point that market mortgage rates exceed the origination interest rate, the probability of sale is decreased by 18.1%. This mortgage rate lock-in led to a 57% reduction in home sales with fixed-rate mortgages in 2023Q4 and prevented 1.33 million sales between 2022Q2 and 2023Q4. The supply reduction increased home prices by 5.7%, outweighing the direct impact of elevated rates, which decreased prices by 3.3%.”
Rather than encouraging Biden to channel FDR and throw federal dollars at today’s housing problems, maybe we need to remember the words of another president who had a more cogent understanding of what government can and cannot do – as Ronald Reagan once opined, “The nine most terrifying words in the English language are: I’m from the Government, and I’m here to help.”
Phil Hall is editor of Weekly Real Estate News. He can be reached at [email protected].
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This almost made me puke as much as Mr Hall’s anger against the “poster” asking for a moonshot.
You don’t get it. Corporations and individual investors aren’t doing anything to help, either, buying up homes and jacking up rents.
And you’re not helping as well by railing against “socialism” (much less do I even think YOU know what the word means) and channeling St Ronnie Reagan.
In my area that I work in, I’m seeing lots of new construction, unfortunately they’re for mid-life or upper class folks that have either a home to sell or more riches than Midas.
There is VERY little incentive for development of subdivisions or sections of a city or county that can build neighborhoods with “starter homes”. There’s no money in it or any incentive. But you can go the other way as well. Mobile/manufactured homes and parks are supplying some of that market, but are way too cheap, erected on insufficient foundations and land, on tiny lots, and in areas that aren’t necessarily as safe as standard residential subdivisions and neighborhoods.
But I’m not asking for Biden to specifically do something, outside of some incentive coming from ANY source, private or public, that would promote not only first-time homeownership, but also at least make it profitable for companies to make starter homes.
The housing stock in my area makes it such that there’s really no starter homes that were built any time after 1980, thus also adding to the issue that a first-time buyer has a LOT more to work on and spend on to buy and keep his first home.
I talk to developers and they tell me they have no incentive to build anything less than $400K per home. Per Redfin (and CBS), the typical starter home price as of last month was $240K.
Blaming government processes and laws and regulations won’t help much. There really ought to be more incentive to build starter homes and satisfy that demand.
Yes, builders are in business to make money. But there should be some happy medium in which to try and satisfy a market that covers all buyers, not just the rich.
There’s another simpler way to increase the supply side here and it can be done immediately. That is to provide a temporary increase in the capital gains exemption on the sale of primary residences. This would break loose a major chunk of inventory by incentivizing current homeowners to sell – and likely downsize or purchase something else. This could be assisted by a deadline to take advantage of the higher exemption. More inventory leads to lower prices, so this could quickly fix one of the nagging problems in today’s real estate economy.