The_Law_of_Pizza t1_izxuql3 wrote
Hi Con,
I'm a financial services attorney - not in the real estate space specifically, but a lot of my practice overlaps with that and other markets.
A hot button topic today (though perhaps it has always been so) is affordable housing, and how we encourage development of and access to it as a critical resource.
My question for you is this: Do you think that entities like the FHLBs can actually help the affordable housing problem? And if so, how?
I have always been skeptical of traditional mortgage-related "help" offered to consumers, as it appears to me that, while they might help the individual borrower in the short term, these programs ultimately inflate the market such that everyone is stuck with higher prices in the long run.
People tend to calculate the house they can afford by reverse engineering it - they take what they can afford in a monthly payment, and then work it backwards to arrive at a total house value. Thus why interest rates effect the value of housing, as you well know.
So, my concern is that mortgage programs which make it easier for people to bid higher on property just inevitably get baked into the value of all property, and within a short period of time everybody is back to square one as prices have adjusted to include whatever subsidy you've introduced in the system.
Do you see any way around this fundamental problem? In your view, is there a place for mortgage programs and/subsidies in the quest for affordable housing?
ProfBU OP t1_izxwu0q wrote
Thanks for this excellent question about affordable housing.
Here's the issue. Congress has mandated 10% of net income for affordable housing. FHLBs treat that at a ceiling rather than a floor. In this public/private partnership why not require 50% of net income for affordable housing? Part of the problem too is the conflict of interest between the member banks that benefit from robust dividends. Also, every dollar of CEO and C-suite compensation undercuts their contribution to affordable housing. All the incentives need to be realigned. Thanks again.
lilbluehair t1_izy6f8o wrote
This is EXACTLY the kind of solution we need, I hope you can spend some of your retirement as an activist :)
scepticalbob t1_izyfszl wrote
I’m going to jump in here
the FHFA and other housing specific agencies can’t do much to address affordable housing, baring them instituting some form of subsidized program that permanently buys down mortgage interest rates. And there isn’t much of an appetite for that
Where the fed is screwing up, and what needs to be done
Right now inflation is being tackled by trying to dramatically curb demand by raising rates, which simultaneously increases housing costs and affordability.
The problem is, there is a massive housing shortage, so this process only really pushes out the individuals who are already on the fringes. In other words, it’s making it worse
What needs to be done, are federal and state level policies that stimulate supply
These should include tax incentives (both positive and negative incentives) for individuals and companies to sell Non Owner Occupied homes
Tax incentives to home owners to sell to Owner Occupants vs Investors
Tax incentives to stimulate new construction
Streamline permitting for new construction
Source : 30 years in the mortgage industry
TerryScarchuk t1_izyq1j5 wrote
To add to that, while incentivizing supply increases we should also look to protect the developers from another future crash. Last time around tens of thousands of small to medium sized builders were financially ruined and left the industry entirely because they were left holding the bag on entirely too much inventory. That’s a big part of why the houses we need today don’t exist and likely won’t be built for another 5-10 years. I’m not saying a “too big to fail” type bailout, but a federal housing insurance program that builders can buy into and have a rescue net to sell inventory into. This could help create a diverse section 8 housing pool while keeping builders afloat.
scepticalbob t1_izyqm95 wrote
Your comments are accurate, but new construction numbers are well below where they were in 2008, and overall percentage of home ownership is waaaay below 08
TerryScarchuk t1_j056v7a wrote
Right, but the reason for NC numbers being so low is that so many builders are out of the industry, and those that remain are hesitant to break new starts. That trend has existed for over a decade.
vAltyR47 t1_izz0ipa wrote
I think the most elegant way to achieve this is to simply shift the current property tax to fall on land value, rather than land value + building value. That way, people's tax bills don't go up when they improve their house or build on their land. Most people who actually live on that land would see an overall decrease in tax bills because most of their property value (the building) no longer gets taxed, but empty lots and lots with condemned or run-down buildings see their bill go up significantly, forcing them to sell to someone who's actually going to do something with the property.
Combine this with zoning and permitting reform to lower construction costs, and I think that will help the situation a lot.
theInferno t1_j00ekpi wrote
Property taxes are too localized and State ran. This needs to be a federal solution.
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