Tag Archives: housing policy

Here Comes The Housing Trust Fund

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HUD has published an interim rule in the Federal Register to governing the Housing Trust Fund (HTF). The HTF could generate about a half a billion dollars a year for affordable housing initiatives, so this is a big deal. The purpose “of the HTF is to provide grants to State governments to increase and preserve the supply of rental housing for extremely low- and very low-income families, including homeless families, and to increase homeownership for extremely low- and very low-income families.” (80 F.R. 5200) HUD intends to “open this interim rule for public comment to solicit comments once funding is available and the grantees gain experience administering the HTF program.” (80 F.R. 5200)

The HTF’s main focus is rental housing, which often gets short shrift in federal housing policy

States and State-designated entities are eligible grantees for HTF. Annual formula grants will be made, of which at least 80 percent must be used for rental housing; up to 10 percent for homeownership; and up to 10 percent for the grantee’s reasonable administrative and planning costs. HTF funds may be used for the production or preservation of affordable housing through the acquisition, new construction, reconstruction, and/or rehabilitation of nonluxury housing with suitable amenities. (80 F.R. 5200)

Many aspects of federal housing policy are effectively redistributions of income to upper income households. The largest of these redistributions is the mortgage interest deduction.  Households earning over $100,000 per year receive more than three quarters of the benefits of that deduction while those earning less than $50,000 receive close to none of them.

So, the HTF is a double win for a rational federal housing policy because it focuses on (i) rental housing for (ii) extremely low- and very low-income households.

While not wanting to be a downer about such a victory for affordable housing, I will note that Glaeser and Gyourko have demonstrated how local land use policies can run counter to federal affordable housing policy. Might be worth it for federal housing policy makers to pay more attention to that dynamic . . ..

Homeless in America

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The Department of Housing Urban Development released Part 1 of The 2014 Annual Homeless Assessment Report (AHAR) to Congress.  Part 1 provides Point-in-Time Estimates of Homelessness. Its key findings include,

  • In January 2014, 578,424 people were homeless on a given night. Most (69 percent) were staying in residential programs for homeless people, and the rest (31 percent) were found in unsheltered locations.
  • Nearly one-quarter of all homeless people were children under the age of 18 (23 percent or 135,701). Ten percent (or 58,601) were between the ages of 18 and 24, and 66 percent (or 384,122) were 25 years or older.
  • Homelessness declined by 2 percent (or 13,344 people) between 2013 and 2014 and by 11 percent (or 72,718) since 2007. (1)

The report notes that in “2010, the Administration released Opening Doors: Federal Strategic Plan to Prevent and End Homelessness, a comprehensive plan to prevent and end homelessness in America.” (3) The plan had four goals:

  1. Finish the job of ending chronic homelessness in 2015
  2. Prevent and end homelessness among Veterans by 2015
  3. Prevent and end homelessness for families, youth, and children by 2020
  4. Set a path to ending all types of homelessness (3)

HUD claims success on all four fronts:

  1. The number of individuals experiencing chronic homelessness declined by 21 percent, or 22,892 people, between 2010 and 2014.
  2. The number of homeless veterans declined by 33 percent (or 24,837 people) since 2010, and most of the decline was in the number of veterans staying in unsheltered locations.
  3. Since 2010 the number of homeless people in families has declined by 11 percent (or 25,690 people).
  4. Overall, homelessness has declined by more than 62,000 people since 2010 (62,042), a 10 percent reduction since the release of Opening Doors. (3)

In many ways, the success of American housing policy comes down to the question — can all Americans have a safe and affordable place to call home? The Administration answers this question in the affirmative. And this report appears to demonstrate that the Administration’s plan to end homelessness is working.

While I am skeptical of claims that we have finally figured out how to systematically address homelessness, I am happy to see that it is trending downward over the last few years.  This report was authored by some serious people, including Dr. Dennis Culhane of the National Center on Homelessness among Veterans at the University of Pennsylvania, so there is reason to trust these numbers. One can hope that this trend continues, but given the financial insecurity so many households face, I am worried that it will not.

Reiss on Threats to Housing

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CBS News interviewed me (and gave a shout out to REFinblog.com) about The 5 Biggest Threats to the Housing Recovery. It reads in part:

3. The government’s role in the mortgage market will change

The U.S. government currently backs about 97 percent of mortgages though the Federal Housing Authority, Fannie Mae and Freddie Mac. That’s unlikely to continue. It may take years, but the feds will eventually start edging out of the mortgage market. Private mortgage financiers will have to fill the void. But exactly how that will happen and what effect it will have on borrowers remains to be seen.

“The entire lending industry needs [government] leadership as to what the bulk of the market is going to look like in the long run,” said David Reiss, professor at Brooklyn Law School and editor of real estate finance industry site REFinBlog. “How tight or loose will credit be? The Federal Housing Finance Agency will decide this to a large extent, as seen by the recent announcement that Fannie and Freddie will no longer buy interest only mortgages.”

Building a Model for Housing Finance

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Following up on Friday’s post, I want to discuss Chambers, Garriga and Schlagenhauf’s draft that they recently posted to SSRN (free here).  It presents some interesting historical analogies to the issues we face as we attempt to chart a new direction for federal housing policy.

They too review the housing subsidies that exist in the financing system and in the tax code.  They attempt to “study the effects of changes in government regulation on individual incentives and relative prices” (4)  They include an interesting Table (2) on page 8 that shows the growing percentage of home mortgages that were insured or guaranteed by the FHA and VA.

What I find most interesting about this article is that it attempts to model the impact of better financing terms on the housing market.  For instance, they argue that their “model suggest that the extension of the FRM contract from 20 to 30 years can explain around 12 percent of the increase in ownership” for a certain period of time. (25)  More generally, they find that the “total impact of mortgage innovation is approximately 21 percent” when combined with “a narrowing mortgage interest rate wedge . . ..” (31) I would love to see more economics articles that model the impact of credit terms on housing prices and homeownership rates.  While this seems fundamental to housing economics, there is less out there about this than there should be.

While their conclusion that “mortgage innovation did make a significant contribution to the increase in homeownership between 1940 and 1960”  is not surprising, their model helps us understand why that is the case. (26)

More on Housing America’s Future

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I blogged about some of the big themes in the Bipartisan Policy Center’s Housing America’s Future report.  Today, I take a closer look at their position on housing finance in particular:

The report states that “it is highly unlikely that private financial institutions would be willing to assume both interest rate and credit risk, making long-term, fixed-rate financing considerably less available than it is today or only available at higher mortgage rates.” (42) This statement is far from uncontroversial.  First, the jumbo private label-market had originated 30 year fixed rate mortgages.  There is at least some tolerance for a product in which the private sector bears both credit and interest rate risk.  Second, the fixation on the 30 year fixed mortgage product is counter-productive.  The typical American household moves every seven years.  In an invisible way, pushing people into 30 year fixed mortgages can harm them.  Think, for instance, of a young couple moving into a one bedroom condominium unit.  The odds that they will be there for 30 years without ever even refinancing to get a lower interest rate or to access the equity they built up is miniscule.  But that couple will be paying an interest rate premium to have their interest rate fixed for that whole thirty years.  That couple would likely be better served by a 5/1 or 7/1 ARM which would balance a low interest rate in the near term with the risk that they stay longer than expected and pay a higher interest rate in the long term.

The reports fixation on put-back risk (46) is a canard.  There is no need to regulate in this area.  Now that private parties are aware that it is a serious issue, they will negotiate accordingly.

The report’s concern with “uncertainty related to pending regulations and implementation of new rules” also seems misguided. (47)  The housing finance system just went through a near death experience.  Of course there is some uncertainty as we plan to take it off of life support.

The report’s position that any “government support for the housing finance system should be explicit and appropriately priced to reflect actual risk” is right on, but the devil will be in the details. (48) How can we set up a system in which political interference won’t distort the pricing of risk?  The government does not have a good track record in this regard.

More anon . . .