A Phil Hall Op-Ed: For too long, the question of increasing affordable homeownership opportunities has been ignored by government leaders. Lately, however, it seems that everyone has an idea on how this elusive goal can be obtained. But all the latest plans being offered miss the crucial point that keeps homeownership out of reach for too many Americans.
On Monday, Federal Reserve Vice Chairwoman Michelle Bowman made a surprise announcement that the central bank was planning changes to its capital requirement rules banks can have more involvement in the mortgage industry. Bowman noted that banks accounted for 60% of mortgage originations in 2008, but that share dropped to 35% in 2023.
Bowman, who was appointed to the Fed by President Trump in his first term, claimed these changes would “increase bank incentives to engage in mortgage origination and servicing.” She even insisted this could help make homeownership more affordable.
“Since banks securitize roughly 75% of their mortgage originations to low- to-moderate income, or LMI, borrowers, the capital treatment may particularly affect mortgage availability and affordability for these borrowers,” she said, adding this new push for more bank-originated mortgages will not create a new financial crisis. “Strengthening bank participation in these activities does not threaten the safety and soundness of the banking system. These goals are consistent.”
Last week, Pennsylvania’s Gov. Josh Shapiro unveiled his 52-page “action plan” that calls for a massive influx of state government intervention into the housing market. The plan has a flood of catchy slogan-goals such as “Boost the Production of Housing where Market Dynamics Make It Difficult to Build,” “Support Pennsylvania’s Small and Emerging Residential Builders and Developers,” “Work with Labor Organizations, School Districts, and Post-Secondary Institutions to Train Pennsylvania’s Next Generation of Builders Expand Housing Opportunity for All Pennsylvanians,” and “Make It Easier for Pennsylvanians to Purchase their First Home.”
Shapiro, who is seeking re-election this November for a second term and is being touted as a potential candidate for the Democratic Party’s presidential nomination in 2028, insisted that work must begin ASAP because “if we don’t take action now, we’ll be short 185,000 homes by 2035.”
Over on Capitol Hill, there are two sprawling bills designed to make homeownership more affordable. Unfortunately, the bills – the ROAD to Housing Act from the Senate and the Housing for the 21st Century Act from the House – have significant incompatibilities. The Bipartisan Policy Center documented 10 pages of differences between the two bills that need to be ironed out – you can check them out at this link – and neither chamber of Congress is willing to compromise.
In the Trump administration, the president has pushed for limiting the ability of institutional investors from acquiring single-family homes using federal financing programs and products. And Trump’s pugnacious little director of the Federal Housing Finance Agency, Bill Pulte, has been shilling for VantageScore and berating FICO as a strategy to level the playing field in credit scoring and getting more people approved for mortgages.
If you made it this far into this op-ed, you may have noticed that none of the various programs, proposals or political posturing has brought forth a surefire plan that makes homeownership more affordable. They increase access to mortgage credit and invent new government programs designed to serve aspiring buyers and cajole builders into constructing more homes. But none of these ideas are crafted to make homes more affordable by lowering property prices.
The problem involving unaffordable housing has nothing to do with the quantity of mortgage originators, or whether those originators are banks or nonbanks. There is no lack of available mortgage credit, nor is access to this credit a problem. And the only one who is concerned if the lender is a bank or a nonbank is a federal regulator.
While restricting corporate entities from swooping in to buy single-family houses sounds good, the Trump plan doesn’t stop institutional investors from buying those properties. Neither of the rival bills in Congress addresses the disruptive presence of these investors in the housing market.
As for the Shapiro plan of massive government intervention, he’s expanding bureaucracy instead of homeownership. Considering the dismal track record of government-fueled homeownership policies, there is no reason to think this could work.
And don’t get me started on the Pulte nonsense with credit scores – that was never an obstacle to making homeownership more affordable. Lowering credit score standards to bring in more people who traditionally would not be eligible for a home loans smacks of the shenanigans that gave us the Housing Bubble. Maybe someday the folks at VantageScore will publicly discuss how they brought Pulte into their sphere of influence.
This situation is being made more complicated than it needs to be. Seriously, it is Economics 101 – for a home to become more affordable, either the price is lowered to something the buyer can afford or the buyer has more money on hand to meet the current asking price.
But even if the buyer has more money to spend, there is still an issue of whether the buyer will be able to cover the mortgage debt being assumed. Considering that year-over-year foreclosure activity has been rising for the past 11 months, the answer is not a guaranteed affirmative.
Here’s a radical idea on how to approach the question of affordable homeownership: let the market correct itself. After all, it seems to be happening, albeit slowly. Home price acceleration has slowed and in some markets the prices are declining. Homes are sitting on the market longer and many sellers are cutting prices to speed up sales. Mortgage rates are moving downward, which obviously helps.
Furthermore, there is no shortage of existing federal, state, and local programs designed to help first-time buyers get a foothold in this market. Help is there for anyone who qualifies. And if they don’t qualify, then that’s not the worst thing that they wait until they are able to afford this important step forward. It is a terrible idea to shoehorn financially unprepared people into situations that will bring them economic and emotional stress – remember what created the chaos of 2008?
Lest we forget, buying a home is the first step in this process. The next step involves whether the buyer will be able to afford living in the home if property taxes and insurance costs are exorbitant. But those are issues for another op-ed – after all, one crisis at a time, please.
Phil Hall is editor of Weekly Real Estate News. He can be reached at [email protected].
The government makes everything more expensive in every industry in which it is involved, from healthcare to real estate. Then, the politicians always come up with more government so they can handle and skim money.
Are you kidding me.
Most of these programs, though well-intended, ignore economic reality. The only way to lower home prices is to increase supply or decrease demand. Most states, especially those on the West and East Coasts, have been behind adequate home supply by hundreds of thousand of units per year for at least three decades. Pent-up demand, with little possibility of providing anything close to meeting that demand, will keep housing prices high. In states where government controls too much land, the limited supply of buildable property guarantees that new homes will be built to meet the demand of the upper 10%. Government should provide land for free for affordable homes. Release surplus land. Give up a little protected land and lower interest rates. The price of a home is not the relevant consideration. How much does it cost per month, loan, HOA dues, property tax and insurance? That dictates affordability. The impact of insurance companies in California further devastated affordability. Get smart. Follow basic economic principals, not empty wrds.
The actual stopping of available Housing, affordable in particular, is the OVER-REGULATION of Zoning, Regulations, ridiculous government fees can cost from 25 to 45% of the sales price of a new home. The redundancy of a licensed Architect and Engineer designing a home to code and then have to have a “Planning Department” staffer “Review” it is unnecessary. The issues of; walkable neighborhoods, how many miles will the home buyers drive to $5-15,000 dollar fees to parks, sewer hookup, water hookups, and more just make the process take so much longer and the fees unreasonable. In Clovis California they paid for a Feasibility Study on affordable housing, and it showed a single property costs over $503,000 to build, but it could not be rented unless it costs only $312,000 to build. So, who is going to invest a half million per unit when costs nearly $200,000 more to build than can be even a break-even build. It is maddening when it can take 18 months to 30 months to build. The normal rate of inflation costs the builder more in labor and material by that length of time. Get the government out of housing, let the market build without interference, fees and delays. Then, maybe, more affordable housing can actually be constructed. Unlike the government, private builders have to run as a business, without unlimited resources!
The points that are a large factor for rural properties that are NOT agricultural are the taxes and insurance. Non residents are having a hard time holding onto the little 10-50 acre tracts that were purchased in the 70’s for family get aways and hunting. The taxes in our county for those properties rose 300% last year. The valuations were based on information from areas that are completely different. Many of them valued at more than the market values. That is all before insurance on the non residential homes.
Several years ago I was holding an Open House for a home that had been in the family since it was built. On display was EVERY building permit issued for that property. In 1932 the permit was one side of a 5 1/2 x 8 1/2″ piece of paper. The permit fee was $2.00. (less than $50 in today’s dollars). About a dozen permits had been issued over the years, each with more complex paperwork and higher fees. The latest permit was for a kitchen remodel. That permit required 6 double sided sheets of 8 1/2 x 11″ paper and cost the homeowner over $1800! That’s about $125 in 1932 dollars. 60 times more to remodel a kitchen than to build a house. Probably took a whole lot more time to get the kitchen remodel permitted, too. Every new regulation adds time and money to a every step of the supply chain via fees, material, labor and overhead. Especially, time — the time value of money is a whole lot more than most folks realize. Yes, we absolutely do need rules and regulation. However, I suspect that if we eliminated half of what’s on the books today, the world would keep on spinning, the populace would still be safeguarded and the cost of everything would be a whole lot less. I’m not holding my breath.
Setting aside building costs for the moment, land cost and approvals have been increasing the cost of finished lots. In Pennsylvania we have many areas were approvals elongate the process and drive up costs. Municipal zoning, designated growth areas, comprehensive plans, site development regulation, state reviews of stormwater management, reservation fees for utilities before approvals and a host of other issues stretch the approval process into years rather than months.
Scarcity of zoned land drives up the acquisition cost. Site design has been made more complex by local regulations thereby stretching design time from weeks to months with the associated costs to prepare. Municipal approvals require redesign, requests for more expensive designs and conditional approvals with outrageous financial requirements. All of which increase costs by tens of thousands of dollars per building lot.
Added to these costs is the developer’s cost to carry the project for years till approvals are acquired and then there is the cost to put the improvements on the site.
Put together, all of these costs contribute to much higher lot prices paid by the consumer before construction begins. Voila!