Opinion by Janneke Ratcliffe for CNN Business Perspectives
Millions of Americans are missing out on the benefits of home ownership because of supply shortages. This shortage is most acute in affordable housing, where low- and middle-income renters, younger first-time buyers and people of color are losing faith that they can experience this part of the American Dream.
We have to do better. The US needs about 3.8 million to 5.5 million residential units. Building more homes for low- and middle-income families and first-time homebuyers, and providing those families with reliable and affordable financing tools so they can compete to buy those homes, is critical if we solve the affordable home crisis want.
In many ways, this crisis was born during the Great Recession. The per capita rate of new production of single-family homes Declined sharply in the mid-2000s, remaining about half what it had been in the previous four decades. This deficit quietly accumulated even as millennials, who initially delayed homebuying after the financial crisis, began to enter the market.
Then came Covid-19. Low interest rates and quarantines fueled housing demand, while labor and material shortages and supply chain challenges slowed construction and increased costs. land prices and development costs are also increasing in many parts of the country. The result is an environment where developers are discouraged from building smaller, more affordable homes in favor of high-end homes that can absorb these increased costs and still make a profit. Meanwhile, many existing home sellers are being inundated with generous cash offers, often from investors, and are discouraged from accepting offers from typical first-time buyers who need more time to arrange and receive a property mortgage.
Past experiences can provide valuable lessons on how to address this crisis. After World War II, the federal government recognized “an unprecedented emergency lack of housing‘, undertook a series of measures, including limiting non-residential construction and lifting import tariffs wood for building houses and providing building materials for housing production for a certain period of time. At the same time, the government made it possible for families to buy houses low deposit, fixed-rate, long-term amortizing mortgages facilitated by government guarantees, fueling demand for new construction of such homes. From 1950 to 1959 an estimated 15 million new houses were built and the home ownership rate increased from 43.6% in 1940 to 61.9% in 1960.
The strategy was flawed, however, as the homes and beneficial financing were largely confined to white households. Levels of federal and local politics effectively barred people of color from being able to become homeowners, injustices that have greatly contributed to our current racial divide between homeowners. Today, 72% of white households own their home, compared to 42% of the Black households48% of Hispanic households and 58% of Households of Asian American and Pacific Islanders.
This is unacceptable. The government rightly treated the housing shortage as an emergency after the Second World War and we need to rekindle that urgency today. But we also have to consider who we are building houses for.
Here are some ways we can begin to address the housing shortage:
Promote the construction of affordable housing
Financial incentives can encourage homebuilders to build new homes that are within the reach of many first-time buyers. Potential incentives range from federal grants and subsidies to better construction loan terms and fewer local regulations and restrictions that significantly increase construction costs.
Lift condo lending restrictions
construction of condominiums, which represent a potential stepping stone for first-time buyers, is at an all-time low. State, local and federal government restrictions on condominium lending present a major impediment to first-time homebuyers who require credit, and in turn, to the development of condominiums for sale.
Focus on finished housing
Manufactured, modular, panel and pre-cut homes are a key piece of the puzzle. Wholly or partially factory built and assembled on site, these different forms of prefab homes are an attractive solution because they cost less to manufacture than homes that are built on site.
Before 1995 about 240,000 manufactured houses shipped annually, compared to less than 100,000 annually now. Similarly, modular, panel, and precut homes accounted for 7% of new single-family homes in the 1990s, compared to just 3% today. The Urban Institute estimates that by increasing production in these areas, we could add 200,000 units of new affordable housing annually. Expanded flexibility in zoning and building codes can help drive the creation of ready-made homes.
Improving the financing of existing housing
In our existing housing stock, there are millions of affordable but older homes that need repairs. Many people in the affordable home market cannot simply buy a home and fix it because of how mortgage financing works. Most lenders only lend against the property’s current value, which does not allow enough for the necessary repairs. As a result, a potential homebuyer may lose the chance to purchase the home investors and companies who can afford to buy houses in bulk, finance the repairs and then rent out the property, preventing the property from returning to the market as an affordable home to buy.
Lenders, the Federal Housing Administration, and Fannie Mae and Freddie Mac can improve financing terms for purchase/rehab loans, which can help unlock this potential supply by allowing new owners to buy, repair, and move into these homes Life.
Another way to get listed housing stocks into the hands of owner-occupiers is to simply modernize the homes before they go on the market, so potential owners don’t have to fight over financing and construction. In many places, community-based developers are bridging this gap with local subsidies or by purchasing foreclosures at preferential terms, allowing them to prioritize offers buyer who intend to live in the house.
None of these measures will succeed in creating stable and affordable home ownership if we do not also equip households with better financing instruments. mortgage loan has remained unduly tight since the Great Recession, locking out many solid potential first-time buyers. State and federally funded agencies should consider relaxing funding restrictions across the board. In particular, enabling more small mortgage loans under $100,000 with underwriting flexibility, simplified processes, and reduced fees and costs will help many low- and middle-income families maintain modest homes. Down payment assistance, in particular e.g First generation homebuyerswill also give families with little wealth a much-needed start on the road to home ownership.
Data shows that right now there are millions of renters, low- and middle-income households, and people of color who meet the criteria to be secured mortgage. You’ve done the hard work of positioning yourself as a homeowner. Now we must do our part by making sure there are houses to buy and reliable financing tools to buy them.
The CNN Wire
™ & © 2022 Cable News Network, Inc., a WarnerMedia company. All rights reserved.