September 29, 2016
Banned from Their Land
Realtor.com quoted me in Family Told They Can’t Live on Their Own Land (and You Won’t Believe Why). It opens,
One of the best perks of owning property—in fact, the main perk—is that you get to live on it. Or so we thought until we learned of a homeowner in Colorado who was told flat-out that her family can’t live on their own land. What’s going on?
Here’s the backstory: In June, an electrical fire left the Lafayette house of 70-year-old Marilyn Minor uninhabitable. Minor began repairs to her home so it would pass city inspections. But lacking the cash for a hotel or other accommodations, she and her home’s other residents—her son Wayne, daughter Charity, and Charity’s two kids—had nowhere to live. So they moved into their van, parked on their own land. It sounds reasonable enough, right?
Wrong.
Their living situation didn’t sit well with some neighbors, who alerted Lafayette city officials, who came back to Minor and told her that vacating her home wasn’t enough. Nope, until her place passed all inspections, the Minor family weren’t allowed to live anywhere on her property at all.
Why? That’s a question Minor is dying to get answered.
“Why can’t I live on the property that I pay taxes for and where I pay the mortgage?” she asked during an interview with Denver7. “I’ll go down fighting. This is my home.”
Although Minor anticipates her house will be fixed up in a few weeks, she’ll be dragged back into housing court next week and could face substantial fines if she remains on her property. And while some of her neighbors clearly disapprove, others are sympathetic.
“They shouldn’t have to be anywhere else,” one neighbor told Denver7. “This is their house.”
True, it’s their house, their land, their home. But according to experts we spoke to, that doesn’t mean they can live there however they please.
“Until the modern era, the common law was based on the understanding that, in many ways, every man’s home was his castle,” says David Reiss, a professor of law at Brooklyn Law School and academic program director at the Center for Urban Business Entrepreneurship.
“But for well over 100 years now, courts have acknowledged that governments have many legitimate reasons to restrict how property owners use their property. For instance, local governments regulate fire safety and sanitation issues, among other things, for the benefit of property owners themselves as well as their neighbors and the broader community.”
September 29, 2016 | Permalink | No Comments
Thursday’s Advocacy & Think Tank Roundup
- NYU’s Furman Center studied the trends and effects of gentrification in the New York City area. They found there was a significant shift in the demographics in gentrified neighborhoods since the 1990s.
- Representatives across the U.S. are seeking to decrease the administrative burdens on public housing regulations; however, doing so may cause detriment rather than help those in need.
September 29, 2016 | Permalink | No Comments
September 28, 2016
Two Cheers for Obama’s Housing Development Toolkit
As the Obama Administration nears the end, the White House released a Housing Development Toolkit. It opens,
Over the past three decades, local barriers to housing development have intensified, particularly in the high-growth metropolitan areas increasingly fueling the national economy. The accumulation of such barriers – including zoning, other land use regulations, and lengthy development approval processes – has reduced the ability of many housing markets to respond to growing demand. The growing severity of undersupplied housing markets is jeopardizing housing affordability for working families, increasing income inequality by reducing less-skilled workers’ access to high-wage labor markets, and stifling GDP growth by driving labor migration away from the most productive regions. By modernizing their approaches to housing development regulation, states and localities can restrain unchecked housing cost growth, protect homeowners, and strengthen their economies.
Locally-constructed barriers to new housing development include beneficial environmental protections, but also laws plainly designed to exclude multifamily or affordable housing. Local policies acting as barriers to housing supply include land use restrictions that make developable land much more costly than it is inherently, zoning restrictions, off-street parking requirements, arbitrary or antiquated preservation regulations, residential conversion restrictions, and unnecessarily slow permitting processes. The accumulation of these barriers has reduced the ability of many housing markets to respond to growing demand.
Accumulated barriers to housing development can result in significant costs to households, local economies, and the environment. (2, emphasis in original)
Glaeser & Gyourko identified the tension between local land use policies and federal affordable housing policies a long time ago, but the federal government has never really done much about it. To its credit, the Obama Administration had touched on it recently, but never in this much depth. So one cheer for the toolkit’s focus on local land use policy as an issue of national concern.
And a second cheer for highlighting actions that states and local governments can take to promote more dynamic housing markets. They include,
- Establishing by-right development
- Taxing vacant land or donate it to non-profit developers
- Streamlining or shortening permitting processes and timelines
- Eliminate off-street parking requirements
- Allowing accessory dwelling units
- Establishing density bonuses
- Enacting high-density and multifamily zoning
- Employing inclusionary zoning
- Establishing development tax or value capture incentives
- Using property tax abatements (3)
I withhold the last cheer because the toolkit spends no time discussing how the federal government could use its immense set of incentives to encourage state and local governments to take steps to increase the housing supply in high-growth areas. The federal government used such incentives to raise the drinking age and it did it to lower the speed limit. Isn’t the nation’s affordable housing crisis important enough that we should use incentives (such as preferred access to HUD funds) to spur development that is good for Americans collectively as well as for so many Americans individually?
September 28, 2016 | Permalink | No Comments
Wednesday’s Academic Roundup
- Lukasz Mach wrote an article entitled, Logit Modelling as a Tool Supporting Decision Making in the Real Estate Market. The article studied how logistic regression significantly affects the demand in the real estate market.
- Monika Piazzesi and Martin Schneider wrote a paper entitled Housing and Macroeconomics. Their paper details housing behavior across 15 years in regards to individuals and their housing choices.
- Barcena, Menendez, Palacios, and Tussel authored a paper titled, Measuring the Effect of the Real Estate Bubble: A House Price Index for Bilbao. The group dissects how and why similar homes are sold at different prices including even small changes such as the same house with a different landscape.
September 28, 2016 | Permalink | No Comments
September 27, 2016
2-4 Unit Properties: Housing’s Middle Child
The Urban Institute’s Laurie Goodman and Jun Zhu have posted Do Two- to Four-Unit Properties Have Higher Credit Risk? An Analysis of Default and Loss Experience to SSRN. The abstract reads,
Two- to four-family properties make up 19% of all rental housing but receive almost no attention. Using a unique dataset from Freddie Mac and Fannie Mae, we show that, for any given set of loan characteristics and compared with one-unit properties, two- to four-unit properties are more likely to default, its owner-occupied (investment) properties are less (more) likely to liquidate, and all two- to four-unit properties are more likely to have a higher loss severity upon liquidation. Historically, these patterns have led to higher losses on two- to four-unit loans. Current tighten credit results in loss rates much closer to those on one-unit owner-occupied properties, indicating that policymakers can relax the credit requirements of two-to-four properties to better serve affordable rental housing.
It is great that the authors are looking at the neglected, middle child of the rental housing market. Providing 19% of the rental housing stock is nothing to sneeze at, even if other segments of the housing stock provide more.
It is particularly interesting to me that owner-occupied 2-4s do better than investor-owned 2-4s in terms of liquidation, even while overall 2-4s are roughly on par with 1-unit owner occupied properties in that regard. There are a lot of other interesting tidbits about this housing stock in the paper, such as the fact that these properties are more likely to be owned by lower-income households and that 2-units have the highest default rates of 1-4 unit properties.
The authors make the case that
though predicted losses on two- to four-unit production are now on par with one-unit owner-occupied properties, the low volume suggests that many borrowers (who are disproportionately likely to be low and moderate income and minority) are getting squeezed out. In the interest of expanding credit to these underserved populations and expanding, or at least preserving, the supply of affordable rental housing, the government-sponsored enterprises (GSEs) could relax the current loan-to-value requirements. If this relaxing were coupled with counseling for landlords, we believe it would make financing more available for this critical part of the market, with little additional risk to the GSEs. (3)
This all sounds good, although I am somewhat skeptical of the claim that reduced financing costs for owners will be passed onto tenants in the form of lower rents or rent increases. There are a lot of factors that go into rent levels, and costs are just one of them. The local demand for housing as well as the competing supply cannot be ignored. Owners may be able to keep all of those reduced financing costs as additional profits, depending on those local conditions.
The main question I am left with after reading the paper is — why haven’t Fannie and Freddie, whose data the paper is based upon, already reached the same conclusion about loosening credit for this type of housing? Do they know something about it that the author’s don’t?
September 27, 2016 | Permalink | No Comments
Tuesday’s Regulatory & Legislative Roundup
- The Securities and Exchange Commission dropped two of their claims against two mortgage executives regarding their accounting practices and hiding funds.
- The U.S. Department of Housing and Urban Development studied new single-family housing sales across the U.S. They noticed that sales decreased from the month of July to August.
- A study of British housing sales show that sales are down due to banks decreasing the number of approved mortgages.
September 27, 2016 | Permalink | No Comments
September 26, 2016
Dipping Into Home Equity
TheStreet.com quoted me in Americans Are Increasingly Dipping Into Home Equity. It opens,
Is there a flipside to rising home values across the nation?
Take California, where stronger home value figures “are giving many homeowners a reason to tap into their equity and spend money,” according to the California Credit Union League.
The CCUL states that approximately 5.2 million homes with mortgages across 11 different metropolitan statistical areas in the Golden State “had at least 20% equity as of June 2016,” citing data from RealtyTrac. Meanwhile, home equity loan originations rise by 15% over the same time period, to $2 billion. “Altogether, HELOCs and home equity loans (second-mortgages) outstanding increased 5% to more than $10 billion (up from a low of $9.2 billion in 2013 but down from $14.2 billion in 2008),” the CCUL reports.
The organization doesn’t see all that home equity lending and spending as a bad thing.
“The local surge in home-equity lending and cash-out refinancings reflects a strong national trend in homeowners increasingly remodeling their homes and enhancing their properties,” said Dwight Johnston, chief economist for the California Credit Union League.
Financial experts generally agree with that assessment, noting that American homeowners went years without making much-needed upgrades on their properties and are using home equity to spruce up their homes.
“Homeowners are cashing in on home equity again because they can,” says Crystal Stranger, founder and tax operations director at 1st Tax, in Wilmington, Del. Stranger says that for many years, home values have decreased or only increased very minor amounts, but now home values have finally increased to a significant enough level where there is equity enough to borrow. “This isn’t necessarily a bad thing though,” she says. “With the stagnant real estate market over the last decade, many homes built during the boom were poorly constructed and have deferred maintenance and upgrades that will need to be made before they could be re-sold. Using the equity in
a home to spruce up to get the maximum sale price is a smart investment.”
U.S. homeowners have apparently learned a harsh lesson from the Great Recession and the slow-growth years that followed, others say.
“Before the financial crisis, many used home equity as a piggy bank for such lifestyle expenditures,” says David Reiss, Professor of Law at Brooklyn Law School, in Brooklyn, N.Y. “Many who did came to regret it after house values plummeted.” Since the financial crisis, homeowners with home equity have been more cautious about spending it, Reiss adds, and lenders have been more conservative about lending on it. “Now, with the financial crisis and the foreclosure crisis receding into the past, both homeowners and lenders are letting up a little,” he says. “Credit is becoming more available and people are taking advantage of it.”
“Nonetheless, good financial advice is timeless, and that hard-earned home equity should be protected from casual expenditures,” Reiss notes. “Your future self will thank you for it, no doubt.”
Other financial industry insiders agree and warn homeowners who take out home equity loans that there is great risk attached to using the money in non-essential ways.
September 26, 2016 | Permalink | No Comments
