Now’s the time. It lies exposed and broken. People are losing their homes at record levels. Everyone is watching the value of their biggest personal investment erode. Banks don’t do what they are supposed to do—lend money. And builders throughout the country are losing their companies and their life’s savings.
Maybe the housing delivery system doesn’t get attention at the federal level because in many minds it begins and ends at the local level. Local government develops a land-use plan. Eventually a builder entrepreneur brings that plan to life. Or maybe it’s because most people think the whole system of providing housing, low-income projects excepted, is better left to the forces of supply and demand. Most builders certainly feel that way. Or maybe it’s because the system, with its myriad inter-related parts, seems beyond central control.
Whatever the reason for entropy, it’s now clear that we have a national problem, brought on by an overly accommodating monetary policy, lax financial regulation, and an appetite for risky mortgage-backed securities. For decades, the home building industry dreamed of a mortgage finance system connected to sources of national and international institutional capital. Once it happened, the players started to innovate. They took more risk in pursuit of higher returns. A home shouldn’t be an asset that’s bought and sold like a futures contract.
Have Money, Will Build
It’s often said that if money is made available, builders will find a way to use it. And that they did, selling homes to investors, to households that would have been much better off staying in rental apartments, and to wealthy individuals with dreams of grandeur. Buyers bid up prices to unsustainable levels and put them out of reach of people whose income couldn’t keep pace with inflation.
With new-home prices back to 2003 levels, housing hasn’t been more affordable in years. But the mortgage finance system has come off its wheels, thanks to the financial crisis precipitated by bad mortgage lending. Even when they can find people willing to buy, builders report all sorts of trouble getting them qualified. It’s as though lenders don’t want to lend.
In the meantime, the foreclosure epidemic, brought on by putting people in homes they couldn’t afford, is driving down the value of everyone’s home. This was one thing builders could always count on—that they were selling people a home that would increase in value. Now, for the first time in history, buyers are faced with the prospect that their new home may lose value in real terms. That’s a tough, if not impossible, objection to overcome.
Let Them Buy Houses
The only stated national housing policy that we’ve had during the Clinton and Bush administrations is to increase homeownership, a noble goal. But no one was minding the major levers that the federal government has to achieve that objective—regulation of the financial industries, the GSEs, the monetary system, and affordable housing programs. Too much fuel was thrown on the fire without enough oversight.
The new administration has a chance to craft a new, more stable policy that recognizes the huge influence that the federal government has over the market. One that provides steadily increasing returns for homeowners, who depend on their homes as a nest egg. One that finds a way to cost-efficiently serve the unserved portions of the housing market. One that defines the government’s role in securing secondary mortgage investments. And one that keeps housing affordable.
We need a housing policy that takes the deathly valleys out of housing cycles. I’m sure every builder would gladly sacrifice some upside for a more stable downside.
When the experts sit down at symposia to discussthe nation’s “housing policy,” attention invariably turns to affordability issues, homelessness, new rental programs, or regulatory barriers to construction. Rarely does anyone take on the whole ball of wax, the nation’s de facto system of financing and constructing homes for a growing population.