President Neal and Ranking Member Brady, along with the distinguished members of the committee, thank you for giving me the opportunity to testify today.
The housing market is changing, and the real culprit is a massive housing price boom fueled by federal housing and monetary policies, which are increasingly pushing low-income Americans out of the housing market.
The current boom in single-family housing, which began in 2012, was entirely predictable and was first noted by the AEI Housing Center in 2013. Since then, the housing market has been marked by too much demand for housing. too low an offer. Yet the policy response has been to stimulate demand even more: Federal housing agencies have eased underwriting and the Fed has pursued zero interest rates and multiple rounds of quantitative easing, continuing even when the housing market Housing started appreciating 16% in July 2021. In May 2022, house price gains were 17% and only now expected to slow as the Fed reverses these policies.
As a result, home ownership has become even more out of reach for many low-income and minority Americans. Consider that since 2012, salaries have increased by 38%, but prices for entry-level homes have increased by about 160%.
This spiraling price out of control means increased competition for less and less affordable housing. Potential entry-level buyers are increasingly pushed aside as they cannot afford to compete with wealthier individuals, who face the same competition, but higher up the price scale.
This creates ripple effects for people downstream. Unable to buy a home, they remain in the rental pool, helping to drive up rents, which are now rising 16% nationally. Many who cannot afford these rent increases will be pushed into homelessness.
If that weren’t enough, inflation is now between 8% and 9% and a Gallup survey from June 1-20, 2022 finds the Gallup Economic Confidence Index is now at its lowest level since 2009.
Inflation is a regressive tax, and getting out of it — let alone saving to buy a home — is getting harder and harder. Thus, misguided policies have severely crippled low-income Americans, especially minorities, who lag dramatically behind white Americans in home ownership and intergenerational wealth. If they can no longer reach the first rung of the housing ladder, how will they be able to catch up?
The solutions are simple.
First, don’t repeat past mistakes.
Congress has embarked on a 70-year effort involving trillions of dollars in program spending, tax benefits, and government-guaranteed funding. Yet neither the goal of making owner-occupied housing and rental housing affordable for low-income households, nor the generational wealth goal for low-income homeowners has been achieved.
The Build Back Better Act (BBBA) provides $184 billion in program spending related to new housing, confirming that we have learned nothing from these failures.
As a cautionary tale, let’s look at the Housing and Community Development Act 1968 and its aftermath. By 1975, its devastating inflationary impact and inefficiency were clear, as these two books so forcefully document.
The first, “Cities Destroyed for Cash: The FHA Scandal at HUD”, was written by a journalist from the Detroit Free Press in 1973. As the title suggests, as a result of the 1968 law, neighborhood after neighborhood was ruined as they were “FHA’d”. Many of these neighborhoods have yet to recover.
The second, “Housing Markets and Congressional Goals” (1975), was written by Ernest Fisher, one of the nation’s leading housing economists for 50 years. Fisher noted that the 1968 Act and its goals “were unrealistic as a production quota, and…were inappropriate and would likely prove as disappointing as many programs introduced and passed by Congress over the years had been.” last two and a half decades”.
[F]From 1967 to 1971…the Boeckh index of home building costs rose nearly 33%, and the average selling price of new homes purchased with the help of FHA mortgage insurance rose 28%, from $18,611 in 1967 to $23,835 in 1971.
[Expanding leverage] to make buying a home “possible for low-income potential buyers” may bring profits and higher wages to builders, construction suppliers and construction labor rather than help low-income households to be competitive in the market.
There you have it: the 1968 law led to neighborhood ruin, scandal, housing inflation, and government profiteering.
In my opinion, BBBA would have the same unrealistic and disappointing results.
Then, when it comes to zoning, the federal government again has a sordid past. In 1921, the federal government led a nationwide effort to implement exclusionary zoning and land use policies designed to make newly built homes too expensive for racial and ethnic groups and we still suffer the consequences. .
It is undeniable that we need more supply at the market rate. But subsidies and easy credit are not the solutions. There is a growing consensus that to make housing more affordable we need to increase supply, not cut credit or increase government subsidies or cut interest rates. In order to stop the price spiral that is shutting low-income Americans out of the housing market and driving up rents, we need a higher supply at the market rate. Let me add that zoning and land use policies are fundamentally a state and local issue and should be addressed at those levels. We are already seeing promise across the country, even in California, where the legislature recently passed laws that could significantly encourage new construction activity.
Second, federal policies aimed at stimulating demand have proven counterproductive. The Fed realized belatedly that it had to tighten the monetary tap. But his policies have already done a lot of damage and will continue to haunt low-income Americans in the form of rising house prices, inflation and rents for years to come.
The cumulative effect of these changes will mean less resilience for borrowers and neighborhoods, many of which are low-income and minority, to withstand an economic stress event. With many economic dangers from rising interest rates, inflation and soaring house prices, regulators should be doing more to protect borrowers and taxpayers, rather than lowering lending standards . We’ve seen this movie before and we shouldn’t allow it to happen again.
What needs to be done beyond state and local actions to add to the supply? Congress should set a policy goal of reliably creating sustainable generational wealth for low-income and minority Americans. Build intergenerational wealth and resilience of neighborhoods and borrowers by reducing loan terms to 20 or 15 years on high-risk loans (Low Income First Time Home Buyers (LIFT Home)):
- The FHA should implement Low-Income First-Time Home Buyers (LIFT Home) for first-generation, low-income buyers.
- GSEs should implement home equity lending to reduce taxpayer risk and encourage borrowers to build equity.
- Congress should consider funding the Low Income First Home Buyer’s Tax Credit (LIFT Home). US Senator Mark R. Warner (D-VA) and colleagues in 2021 introduced the Low Income First Time Home Buyers Act (LIFT) establishing a new program to help first-generation first-time homebuyers — mostly Americans of color — build wealth much faster. By offering new homeowners a 20-year mortgage for roughly the same monthly payment as a traditional 30-year loan, LIFT will allow them to grow their equity twice as fast.
 https://www.epi.org/nominal-wage-tracker/ and https://www.aei.org/housing  https://news.gallup.com/poll/148613/economic-confidence-sinks-lowest-level-march.aspx
 Real estate loan wealth building and LIFT Home
LIFT loans are expected to be structured as an interest rate buyout on a 20-year loan given to first-generation homebuyers, rather than down payment assistance. The lower purchase rate, combined with a slightly lower rate due to the shorter term, as well as a lower cost of mortgage insurance, allows LIFT Home to have the same buying power as a 30-year loan. For rate buyback, assistance should be provided as compensation to HUD/Rural Housing/Treasury for the purchase of a below market yielding Ginnie MBS.
 Applies the same concepts as LIFT Home, but operates through traditional loans and without federal subsidy.
BBBA provided $5 billion for Lift Home.
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