February 26, 2013
New Direction for Federal Housing Policy? Finally!
The Bipartisan Policy Center has released Housing America’s Future: New Directions for National Policy. The Wall Street Journal reported (behind a paywall) that the report represents a “behind-the-scenes effort to jumpt-start the debate over Fannie’s and Freddie’s future . . ..” My preliminary thoughts on it:
- The report’s first key policy objective is exactly right: “The private sector must play a far greater role in bearing
credit risk.” (8) I have taken this position for years. There is no reason that a large share of the credit risk should not be underwritten and borne by the private sector. That is, after all, what they are supposed to do in free market. This is not to say that the federal government has no role. But the current state of affairs — with the government supporting more than 90 percent of home loans — is a recipe for the next housing disaster. - The government’s role should be limited to supporting the mortgage market for low- and moderate-income households and to playing the role of lender/insurer of last resort when the mortgage market dries up.
- The report is again exactly right when it says that Fannie and Freddie should be wound down and replaced with a wholly-owned government entity that will not suffer from the dual mandate of fulfilling a public mission and maximizing profits for its shareholders.
- The report favors a policy of assisting all very low-income households with their housing expenses. This is a great and radical step. But any such policy should take into account the Glaeser and Gyourko’s research that indicates that local land use policy can be at odds with federal housing policy in order to make sure that federal monies are used effectively.
I do not agree with the report in all respects. Some examples:
- The report characterizes the FHA as having only one “traditional mission of primarily serving first-time homebuyers.” (8) This characterization repeats the conventional wisdom but the conventional wisdom reads the history of the FHA incorrectly. I will be posting an article on the history of the FHA later this year that will hopefully set the record straight. The FHA certainly needs reform, but we should start with all of the relevant facts before jumping in.
- The report asserts that housing counseling is effective (9) but the empirical evidence is not so clear. Any policy that devotes significant resources to counseling should be built on a solid basis of empirical support.
Notwithstanding these criticisms, the report is a great first step toward developing a federal housing policy for the 21st Century. More on the report anon.
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