As we near the final phase of the election cycle, issues like terrorism, taxes, immigration, and gun regulation have been widely discussed. But housing policy has mostly failed to work its way into stump speeches, debates, and other political pit stops on the road to the White House.
Republican presidential nominee Donald Trump doesn’t mention housing within his list of priority issues. And while housing is among the 19 policy proposals listed on Democratic presidential nominee Hillary Clinton’s website, the plan is overly broad. Clinton says she wants to make rentals more affordable and create better access to homeownership through educating people on how to build credit and manage a mortgage, updating underwriting tools, clarifying lending requirements, and providing financial support for blighted areas. Though there's little information on how much this kind of program would cost, it does offer a very basic foundation for how Clinton would begin to deal with a large housing issue that remains largely untouched.
In the years since the market crash, lawmakers have recoiled from talking about the increasing difficulty people are having affording a home. That may be because one of the precipitating factors in the 2008 housing crisis was the fact that policies and goals were aimed specifically at growing home ownership among people with incomes below the local median.
For instance, between 1997 and 1999 the U.S. Department of Housing and Urban Development pushed national mortgage entities Fannie Mae and Freddie Mac to have 42% of their mortgages be for families with below median income. The agency also had targets to deliver mortgages to certain "underserved" neighborhoods. The prevailing thought at the time was that increasing home ownership among Americans of all classes would lead to both better economic outcomes and encourage people to invest in their communities.
Unchecked subprime loans were able to proliferate in this climate. Though both Fannie Mae and Freddie Mac had standards for the loans they accepted from banks, they expected banks to do their own due diligence. "Historically, the way Fannie Mae and Freddie Mac would buy loans, is that originators would deliver them to us with the promise that they conformed to our standards," Fannie Mae's CEO Timothy J. Mayopoulos said during a fireside chat with The Atlantic's Steve Clemons in September. "The companies didn’t have any effective way of inspecting that because they have millions of loans coming to them every month."
In 2007, people who couldn't afford the subprime mortgages they signed up for were facing foreclosure. As homes flooded the market, supply outpaced demand. Soon others found themselves with homes below the value of their outsized mortgages. The government was then forced to put Fannie Mae and Freddie Mac under its purview and plunk down enough money to save 400,000 families from losing their homes.
While the nation has recovered substantially thanks to the government's efforts, access to housing still remains a problem in 2016. In the last eight years, thanks in part to an economic recession, bloated student debt, and a large number of housing foreclosures (9.4 million according to CoreLogic estimates in Harvard's Joint Center for Housing Studies State of The Nation's Housing 2016 report), home ownership is at its lowest level in nearly half a century.
In the second quarter of this year, the home ownership rate dipped down to 62.9%, bringing it back to the same level it was in 1965, according to the Census Bureau. In 2016, just a third of adults between the ages of 20-24 own homes, compared with 35% in 1995 and above 40% in 2005. Low homeownership levels have put pressure on a slow-growing stock of rental homes, sending rent prices skyward, and leaving more people than ever scrambling to find affordable housing.
But with the economy brightening and more millennials heading into their thirties, it won’t be long before the government has to address these dismally low homeownership figures and the barriers to affordable living in 2016, including access to credit. "We need to have a national policy that says what is our strategy for housing people," said Mayopolous. "We don’t really have one."
Housing policy in this country is often regarded as an issue for poor people who don’t have a lot of political agency. But in the wake of the 2008 housing crisis, people in a larger scope of income brackets are having difficulty finding affordable places to live. The U.S. doesn’t, in fact, have a national housing policy, as Mayopoulos refers to it. A combination of tax subsidies and public housing help support people without the means to afford a home, but critics say the scope of those programs is limited—not everyone who is eligible for public housing gets it.
"When you have 11 and a half million renter households spending more than half their income on housing, meaning they have very little left over to spend on food, on health care, on savings for retirement—it’s a problem," says Christopher Herbert, managing director of the Joint Center for Housing Studies at Harvard.
To alleviate stress on the saturated rental market, Congress may have to reconsider homeownership. While owning a home may not be feasible for everyone, the government could build an infrastructure that helps people develop good credit and promotes sustainable homeownership. However, lawmakers may not be quick to engage on this issue.
The reluctance to address the current housing dilemma may be compounded by the $503 billion national deficit projected for fiscal year 2017. Democrats and Republicans alike may be loath to add a costly new domestic housing program to the agenda during an election year. Plus, housing policy tends to be convoluted, requiring input from a variety of organizations.
"The number of stakeholders and the number of people that interact and intersect with housing policy and housing finance reform is so complex that actually getting consensus around this issue is very difficult," says Jeff Foster, founder of lending startup Clara and former senior policy advisor to the Department of Treasury.
In Congress there is currently one bill, submitted by Senator Ron Wyden (D) Oregon, aimed at tackling a portion of the housing problem through a Middle Income Housing Tax Credit. This would expand on the existing Low Income Housing Tax subsidy that helps those making less than 60% of area median incomes cover shelter expenses.
Not only would Wyden's bill extend the pool of eligible candidates to those that make up to the area median income, it would also allocate more money to the overall housing tax credit program. The subsidy could help those with average incomes stay afloat in metropolitan areas where rents are rising. It could also draw more attention to the housing problem by making housing a middle class issue.
Wyden’s bill hasn’t seen much movement since it was proposed last month. Opponents say there are not enough government dollars being devoted to low-income housing as it is, and adding middle class households to the mix would only further dilute available resources. Only a quarter of those eligible for assistance actually get it, according to the Urban Institute. That shortage has lead to years-long waiting lists for public housing and lower income household’s getting left behind.
The National Low Income Housing Coalition argues that the vast majority of qualifying low-income households are so overburdened financially, that Congress should be devoting more resources to them—not middle-income families.
But Herbert argues that creating a middle-income housing subsidy could actually grow the pot of money available to low income families. "We’ll do that by saying, look, we can make it available to people in the middle-income distribution while still allowing states to target down lower if that’s where the need is," explains Herbert. He thinks the law could allow states to customize housing subsidies based on local needs. So, if one area doesn't have many middle-income families asking for housing subsidies that money could be reallocated to low-income families in the same area.
There's a question over how much of this is a local responsibility versus a federal one. The White House released a white paper in September that put blame on local regulation and zoning for creating barriers to housing development and made suggestions for how to create pathways for more development.
Adding more rental supply through construction could help house more people, but only if the new units are affordable. In 2015, the majority of new building development in major metropolises was aimed at the luxury market, according to the Wall Street Journal. Some city officials have teamed up with developers to brainstorm ways to make building housing cheaper so it can increase the stock of public housing. Among the various pilots are modular and prefabricated homes, which could get both public housing and other affordable construction up more quickly.
In the private sector, innovative lenders are trying to reverse the home ownership trend through improving access to credit and revamping mortgage applications. Quicken Loans, as well as a few smaller financial tech startups like Blend and Clara, are rolling out technology to make the mortgage process less cumbersome. The technology both simplifies and digitizes the paperwork and enhances underwriting, potentially giving more people the opportunity to get a home loan.
There's also a smattering of products aimed at helping people repair their credit in the wake of the recession. Goldman Sachs recently launched Marcus to help people consolidate debt. Meanwhile, online lenders like SoFi and Lending Club provide personal loans with the same intention. Another service, Credit Karma, gives people access to their credit rating year-round, as opposed to the normally allotted three times a year.
Even Fannie Mae, the federal national mortgage association, is overhauling its internal operations to be more fast-moving. In his conversation with The Atlantic, Mayoloulos said the institution is ditching its digs on Wisconsin Avenue in favor of an open floor plan office in the middle of Washington, D.C. to operate more like a startup. It’s also embracing new financial technology to both speed up the mortgage process and provide better oversight and transparency into the loans themselves.
"Now at Fannie Mae our goal is to get to a point where we’re able to independently verify borrower income, borrower assets, and the collateral value of the property electronically within seconds before the loan is even delivered to us," said Mayopoulos.
Of course, homeownership itself is not a panacea for the overall housing crisis, though increased home ownership could reduce strain on rental properties. "One thing I believe is important is that we promote sustainable homeownership versus homeownership for homeownership's sake," says Foster. "I think the policies of the past promoted homeownership as an absolute good and homeownership isn’t right for everyone."
Rebalancing the scales in the housing economy may require a federal hand—one that can pull in officials from Fannie Mae, Freddie Mac, HUD, and the Department of Treasury. That's because ensuring home ownership in a financially responsible way that picks out individuals who—despite their lower credit rating or income—may be good candidates for owning a home, may require a more sweeping plan than states or cities alone can provide.
"There are lots of loans that we would feel comfortable buying and guaranteeing that are not coming to us," said Mayopoulos, "and that is constraining the market."