Tag Archives: housing affordability

More on the 50-Year Mortgage

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Marketplace interviewed me in Trump Floated a 50-Year Mortgage to Address Housing Affordability. How Would That Work? The transcript reads,

President Donald Trump proposed a 50-year mortgage over the weekend, in a social media post. The idea came from Bill Pulte, the Federal Housing Finance Agency director.

“The average age of a first-time home buyer is now 40 years old. The notion that you’d finish paying off your mortgage at 90 is probably not something that most people contemplate when they want to buy a home,” said David Reiss, a professor at Cornell Law School.

Still, in the short term, a 50-year mortgage would appear cheaper — slightly. Robert Bridges did the math; he’s associate professor emeritus at the University of Southern California’s Marshall School of Business.

“The payment on a 50-year mortgage, for instance, for a $200,000 loan at 6% would be about $1,052, where a 30-year loan would have a payment of $1,199,” Bridges said.

So that’s a difference of $147 in that example. But it comes with costs to the borrower as well, for starters the interest rate would be higher.

“You pay more for a 30-year mortgage than you do for a 15-year mortgage,” Reiss said. “So you will probably pay more for a 50-year mortgage than you would for a 30-year mortgage.”

According to the American Enterprise Institute, a 50-year mortgage would, initially, increase a homeowner’s buying power by 8%.

“Over time, maybe months, maybe years, that would fade,” said Edward Pinto, a senior fellow at the American Enterprise Institute.

Basically, if everyone’s buying power goes up, so does the price of housing. And a longer mortgage also means it takes longer to build up equity.

“And then you’re really left with not much advantage, and you become really a renter with a mortgage,” Pinto said.

A longer loan where it takes longer to build equity also leaves homeowners more vulnerable to risks in the market if home prices stagnate, which Pinto predicts they will in the coming years.

“This has been tried with 40-year loans before, and every time it’s been tried in the United States, it’s failed,” Pinto said.

Failed because they’re too risky, he said. That’s one reason we don’t already have 50-year mortgages.

“It doesn’t seem like this is really the remedy for the housing problem that we all know we have in this country,” Bridges said.

Which is first and foremost, he said, that we don’t have enough of it.

Trump & Pulte’s 50-Year Mortgage

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Politico quoted me in ‘Band-Aid,’ ‘Distraction’: Experts Slam Pulte, Trump 50-Year Mortgage Idea. It opens,

The Trump administration is entertaining a potential plan for the government to back 50-year mortgages to address a housing affordability crisis.

But, in a housing market defined by low supply, industry experts warn that changes in financing are likely to be little more than a “band-aid” and a “gimmick,” while posing bigger risks to homebuyers.

“As a country, the mortgage term is not what we should be worried about. We should be focused on building more supply,” said Troy Ludtka, senior U.S. economist at SMBC Nikko Securities America.

Federal Housing Finance Agency Director Bill Pulte posted on X Saturday that the Trump administration is working on directing government-owned housing finance companies Fannie Mae and Freddie Mac to support 50-year home mortgages, calling the move ”a complete game changer.” President Donald Trump also posted on his social media platform, Truth Social, supporting the idea.

The proposal comes after Trump directed Pulte to leverage Fannie and Freddie to ramp up the country’s stalled housing production to bring down costs and address the estimated shortage of 4.7 million homes. But the new proposal is raising concerns about whether such a major change to the two giant mortgage financiers’ buying rules could destabilize a central strength of homeownership — the opportunity to build wealth over time.

In a series of follow-up posts over the weekend, Pulte wrote that “a 50 Year Mortgage is simply a potential weapon in a WIDE arsenal of solutions that we are developing right now. STAY TUNED!” He sounded off about other possible ideas like supporting portable mortgages, which can transfer to a new property, and assumable mortgages, which can be transferred to a property’s new buyer.

An FHFA spokesperson told POLITICO, “We continue to evaluate all options to address housing affordability, including studying how to make mortgages assumable or portable.”

And a White House spokesperson said in a statement, “President Trump is always exploring new ways to improve housing affordability for everyday Americans. Any official policy changes will be announced by the White House.”

Experts expect that extending the potential length of Fannie- and Freddie-supported home loans would require congressional support.

Fannie and Freddie don’t offer loans directly to potential homebuyers; instead, they purchase mortgages from lenders to package and sell on the secondary market. This frees up resources for lenders to issue new mortgages.

By purchasing 50-year mortgages, Fannie and Freddie could make the longer-term loans more appealing for lenders to offer. With a longer loan, monthly payments could come down, but it also comes at a cost to homebuyers.

“It would lead to buyers building equity in their homes more slowly. At the beginning of the mortgage, more of those payments tend to be interest… This is more of a stopgap band-aid to address affordability,” said Gennadiy Goldberg, head of US rates strategy at TD Securities.

Sharon Cornelissen, director of housing at the Consumer Federation of America, called the proposal “a distraction” and warned that although expanding the accessibility of 50-year mortgages could lower monthly payments, “the cost of that is that people won’t be able to build wealth through homeownership.”

And as first-time homebuyers get older, the 50-year mortgage appears less manageable, Cornelissen said. Last week, the National Association of Realtors shared findings that the median age of first-time homebuyers had risen to an all-time high of 40.

“So you’ll be 90,” Cornelissen said, adding that finishing payment on a 30-year mortgage is a “stabilizing force” for people going into retirement.

David Reiss, a Cornell Law School professor and real estate finance researcher, said a move toward 50-year mortgages would require homebuyers to rethink how they save for retirement.

“We often hear financial advice that you want to try to pay off your mortgage before the time that you retire,” Reiss said. “So that’s a problem.”

What’s Andrew Cuomo’s Plan to Help New York City Renters?

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The New York Times interviewed me in a video, What’s Andrew Cuomo’s Plan to Help New York City Renters? The transcript reads,

“Can you describe rent prices in New York?” “High.” “Expensive.” ”Out of control.” ”The rent here is absolutely crazy.” “Very, very unaffordable. Two verys — yeah very, very expensive.” Median asking rent in New York City is up more than 7 percent in just the last year. It’s now about $4,000 per month. That’s made the cost of housing a key issue in the mayor’s race, with the top candidates each proposing changes to a core New York City housing policy: rent stabilization. Nearly half of the apartments in New York are currently rent stabilized, which means that their rent increases are determined by a government agency controlled by the mayor. That makes rent stabilization a hot button issue for hundreds of thousands of voters. After front-runner Zohran Mamdani revealed what he pays in rent — “$2,300 for my one bedroom in Astoria.” — rival Andrew Cuomo argued he was unfairly occupying an affordable apartment and shouldn’t qualify for rent stabilization because he makes $142,000 a year. “Rent-stabilized units, when they’re vacant, should only be rented to people who need affordable housing.”

Many rent-stabilized tenants are low income, but about 16 percent of rent-stabilized households do earn at least $150,000 a year. If elected mayor, Cuomo says you could only qualify for a rent-stabilized apartment if your rent is 30 percent or more of your income. Let’s say this couple is looking for an apartment. Their salaries are $35,000 and $45,000 a year. They find a rent-stabilized apartment for $2,000 a month. That’s 30 percent of their income. So under Cuomo’s plan, this couple will face less competition for this lease because anyone who makes more than them could not apply for the the apartment. Means-testing is popular with voters. About 65 percent supported it in a recent Times-Siena poll.

But critics argue that Cuomo’s plan reflects a misconception that rent stabilization is an affordable housing program. In fact, it’s a form of market regulation with roots in the postwar era. “After World War II, you had returning G.I.s starting families.” The rent gets too damn high and the government takes a look to say, ‘Is there something we could do about it?’” Some apartments in this period were rent-controlled. The system that eventually effectively froze 1970s rents in place like the famously low-rent apartments from “Friends” and “Sex in the City.” “You have a rent-controlled apartment? I suggest you stay there.” In reality, only about 1 percent of apartments are rent controlled today. Most are now covered by rent stabilization, which first became law in 1969. “It really was this broad-based sense that tenants needed the government to come in and kind of limit that increase in their rent. Rent stabilization was not designed to take into account the income of the tenant at all. Rent regulation was really put into place to say when the vacancy rate is so low, landlords can’t use that as an opportunity to gouge tenants for increases in rents.” Today, rent stabilization applies to most apartments in buildings with at least six units that were built before 1974. That covers about one million units and two million New Yorkers. Rent increases are set by the mayor-appointed Rent Guidelines Board. “So you’re not at the mercy of your landlord solely. They can only go according to the increased percentage rate that the Rent Guidelines Board decides.”

Joanne Grell is a tenant advocate in the Bronx. She moved into a rent-stabilized apartment nearly 25 years ago and still lives in it today. “I moved here back in 2002 with a 2-year-old and a 5-year-old, not knowing exactly how I was going to be able to be a single mom and afford to live in the city. Fast forward 23 years later, I raised my children here.” When she moved in, her rent was about $950 a month. She earned a moderate income, but if means-testing had been in place, she wouldn’t have qualified for her unit. “When I moved in here 23 years ago, it might have been 20 percent of my salary. So if Cuomo’s means-testing proposal was in place when I applied for this apartment, I would have never been able to get it.” Now, she does spend more than 30 percent of her income on rent, which has gone up to $1,750 a month. Grell plans to vote for Mamdani this election because she believes his proposal to freeze the rent would help struggling tenants like her and 69 percent of voters in the Times-Siena poll agreed. “My upstairs neighbor said to me, ‘If I get another increase, I will not be able to keep my apartment.’ That’s how serious it is.”

David Reiss said that Mamdani’s rent freeze would help tenants in the short term, while Cuomo’s means-testing would be an administrative nightmare that could make life difficult for many. Ultimately though, he said neither of these policies address the root cause of high prices: that there aren’t enough apartments to go around. Both mayoral candidates have said they support building hundreds of thousands of units to help address the housing shortage. “We need more housing, a lot more.” “Get the supply up. The rents will come down.” But Reiss says neither candidate’s plans would meet the demand and don’t account for factors like population growth or apartments being demolished. “Politicians from President Trump to Andrew Cuomo to Zohran Mamdani, have all proposed policies to address housing affordability. But it can’t just be doing what we’re doing now, but a little bit better. Fundamentally, if you want to increase affordability, you have to build more housing.”

Expanding Access to Homeownership

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New homeowners Lateshia, Sylvia, and Tyrell Walton stand in front of their new home.  U.S. Navy photograph by Mass Communication Specialist Seaman Shamus O’Neill

Christopher Herbert et al. has posted Expanding Access to Homeownership as a Means of Fostering Residential Integration and Inclusion. It opens,

Efforts to enable greater integration of communities by socioeconomic status and race/ethnicity have to confront the issue of housing affordability. Cities, towns and neighborhoods that offer access to better public services, transportation networks, shopping, recreational opportunities, parks and other natural amenities have higher housing costs. Expanding access to these communities for those with lower incomes and wealth necessarily entails some means of bringing housing in these areas within their financial reach. While households’ financial means are central to this issue, affordability intersects with race/ethnicity in part because minorities are more likely to be financially constrained. But to the extent that these areas are also disproportionately home to majority-white populations, discrimination and other barriers to racial/ethnic integration must also be confronted along with affordability barriers.

Enabling greater integration also entails some means of fostering residential stability by maintaining affordability in the face of changing neighborhood conditions. This issue is perhaps most salient in the context of neighborhoods that are experiencing gentrification, where historically low-income communities are experiencing rising rents and house values, increasing the risk of displacement of existing residents and blocking access to newcomers with less means. More generally, increases in housing costs in middle- and upper-income communities may also contribute to increasing segregation by putting these areas further out of reach of households with more modest means.

It is common to think of subsidized rental housing as the principal means of using public resources to expand access to higher-cost neighborhoods and to maintain affordability in areas of increasing demand. But for a host of reasons, policies that help to make homeownership more affordable and accessible should be included as part of a portfolio of approaches designed to achieve these goals.

For example, survey research consistently finds that homeownership remains an important aspiration of most renters, including large majorities of low- and moderate-income households and racial/ethnic minorities. Moreover, because owner-occupied homes account for substantial majorities of the existing housing stock in low-poverty and majority-white neighborhoods, expanding access to homeownership offers the potential to foster integration and to increase access to opportunity for low- income households and households of color. There is also solid evidence that homeownership remains an important means of accruing wealth, which in turn can help expand access to higher-cost communities. Owning a home is associated with greater residential stability, in part because it provides protection from rent inflation, which can help maintain integration in the face of rising housing costs. Finally, in communities where owner-occupied housing predominates, there may be less opposition to expanding affordable housing options for homeowners.

The goal of this paper is to identify means of structuring subsidies and other public interventions intended to expand access to homeownership with an eye towards fostering greater socioeconomic and racial/ethnic integration. (1-2, footnotes omitted)

The paper gives an overview of the barriers to increasing the homeownership rate, including affordability, access to credit and information deficits and then outlines policy options to increase homeownership. The paper provides a good overview for those who want to know more about this topic.

 

Big Eviction Data

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The Eviction Lab, run by Princeton University Professor Matthew Desmond (of Evicted fame) has recently released its Methodology Report and related resources. The introduction to the report opens,

In recent years, renters’ housing costs have far outpaced their incomes, driving a nationwide affordability crisis. Current data from the American Housing Survey show that most poor renting families spend at least 50 percent of their income on housing costs. Under these conditions, 1 millions of Americans today are at risk of losing their homes through eviction.

An eviction occurs when a landlord forcibly expels a tenant from a residence. While the majority of evictions are attributed to nonpayment of rent, landlords may evict tenants for a variety of other reasons, including property damage, nuisance complaints, or lease violations. A formal eviction occurs when a landlord carries out an eviction through the court system. Conversely, an informal eviction occurs when a landlord executes an eviction without initiating a legal process. For example, a landlord may offer a buyout or perform an illegal lock-out. Until recently, little was known about the prevalence, causes, and consequences of eviction.

The Eviction Lab at Princeton University has collected, cleaned, geocoded, aggregated, and publicized all recorded court-ordered evictions that occurred between 2000 and 2016 in the United States. This data set consists of 82,935,981 million court records related to eviction cases in the United States between 2000 and 2016, gleaned from multiple sources. It is the most comprehensive data set of evictions in America to date.

These data allow us to estimate the national prevalence of court-ordered eviction, and to compare eviction rates among states, counties, cities, and neighborhoods. We can observe eviction trends over time and across geography, and researchers can link these data to other sources of information. (2)

In sum, the Eviction Lab has created “the most comprehensive data set of evictions in America.” (41) This data set is obviously of great importance and will lead to important research about what it means to be poor in the United States. The Eviction Lab website has a user-friendly mapping function among other resources for researchers and policymakers.

Housing Affordability and GSE Reform

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Jim Parrott and Laurie Goodman of the Urban Institute have posted Making Sure the Senate’s Access and Affordability Proposal Works. It opens,

One of the most consequential and possibly promising components of the draft bill being considered in the Senate Banking Committee is the way in which it reduces the cost of a mortgage for those who need it. In the current system, Fannie Mae and Freddie Mac (the government-sponsored enterprises, or GSEs) deliver subsidy primarily through the level pricing of their guarantee fees, overcharging lower-risk borrowers in order to undercharge higher-risk borrowers. While providing support for homeownership through cross-subsidy makes good economic and social sense, there are a number of shortcomings to the way it is done in the current system.

First, it does not effectively target those who need the help. While Fannie Mae and Freddie Mac are both pushed to provide secondary market liquidity for the loans of low- and moderate-income (LMI) borrowers in order to comply with their affordable housing goals and duty to serve obligations, almost one in four beneficiaries of the subsidy are not LMI borrowers (Parrott et al. 2018). These borrowers receive the subsidy simply because their credit is poorer than the average GSE borrower and thus more costly than the average guarantee fee pricing covers. And LMI borrowers who pose less than average risk to the GSEs are picking up part of that tab, paying more in the average guarantee fee than their lower-than-average risk warrants.

Second, the subsidy is provided almost exclusively through lower mortgage rates, even though that is not the form of help all LMI borrowers need. For many, the size of their monthly mortgage is not the barrier to homeownership, but the lack of savings needed for a down payment and closing costs or to cover emergency expenses once the purchase is made. For those borrowers, the lower rate provided in the current system simply does not help.

And third, the opacity of the subsidy makes it difficult to determine who is benefiting, by how much, and whether it is actually helping. The GSEs are allocating more than $4 billion a year in subsidy, yet policymakers cannot tell how it has affected the homeownership rate of those who receive it, much less how the means of allocation compares with other means of support. We thus cannot adjust course to better allocate the support so that it provides more help those who need it.

The Senate proposal remedies each of these shortcomings, charging an explicit mortgage access fee to pay for the Housing Trust Fund, the Capital Magnet Fund, and a mortgage access fund that supports LMI borrowers, and only LMI borrowers, with one of five forms of subsidy: a mortgage rate buy-down, assistance with down payment and closing costs, funding for savings for housing-related expenses, housing counseling, and funding to offset the cost of servicing delinquent loans. Unlike the current system, the support is well targeted, helps address the entire range of impediments to homeownership, and is transparent. As a means of delivering subsidy to those who need it, the proposed system is likely to be more effective than what we have today.

If, that is, it can be designed in a way that overcomes two central challenges: determining who qualifies for the support and delivering the subsidy effectively to those who do. (1-2, footnote omitted)

This paper provides a clear framework for determining whether a housing finance reform proposal actually furthers housing affordability for those who need it most. It is unclear where things stand with the Senate housing finance reform bill as of now, but it seems like the current version of the bill is a step in the right direction.

Zoning and Housing Affordability

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Vanessa Brown Calder has posted Zoning, Land-Use Planning, and Housing Affordability to SSRN. It opens,

Local zoning and land-use regulations have increased substantially over the decades. These constraints on land development within cities and suburbs aim to achieve various safety, environmental, and aesthetic goals. But the regulations have also tended to reduce the supply of housing, including multifamily and low-income housing. With reduced supply, many U.S. cities suffer from housing affordability problems.

This study uses regression analysis to examine the link between housing prices and zoning and land-use controls. State and local governments across the country impose substantially different amounts of regulation on land development. The study uses a data set of court decisions on land use and zoning that captures the growth in regulation over time and the large variability between the states.

The statistical results show that rising land-use regulation is associated with rising real average home prices in 44 states and that rising zoning regulation is associated with rising real average home prices in 36 states. In general, the states that have increased the amount of rules and restrictions on land use the most have higher housing prices.

The federal government spent almost $200 billion to subsidize renting and buying homes in 2015. These subsidies treat a symptom of the underlying problem. But the results of this study indicate that state and local governments can tackle housing affordability problems directly by overhauling their development rules. For example, housing is much more expensive in the Northeast than in the Southeast, and that difference is partly explained by more regulation in the former region.

Interestingly, the data show that relatively more federal housing aid flows to states with more restrictive zoning and land-use rules, perhaps because those states have higher housing costs. Federal aid thus creates a disincentive for the states to solve their own housing affordability problems by reducing regulation. (1)

This paper provides additional evidence for an argument that Edward Glaeser and others have been making for some time now.

Local governments won’t make these changes on their own. Nonetheless, local land-use decisions have a large negative impact on many households and businesses who are not currently located within the borders of the local jurisdictions (as well as some who are). As a result, the federal government could and should take restrictive land use regulation into account when it allocates federal aid for affordable housing.

The Obama Administration found that restrictive local land-use regulations stifled GDP growth in the aggregate. Perhaps reforming land-use regulation is something that could garner bipartisan support as it is a market-driven approach to the housing crisis, a cause dear to the hearts of many Democrats (and not a few Republicans).