PRESIDENT BUSH HAS BEEN quick to take credit for the low interest rates and continued strong demand for housing that spurred the building boom. Just about every week this spring and summer, the current 68.5 percent homeownership rate pops up in campaign rhetoric, near the top of the president's campaign platform.
In recognition of this year's presidential election, Builder asked President Bush and presumed Democratic candidate Sen. John Kerry to share their views on housing issues.
“What we see in the push to home-ownership is the denigration of rental housing with homeownership seen as good and renting as bad,” says Sheila Crowley, president of the National Low Income Housing Coalition.
“A healthy housing system requires that people have choices,” she says. “For many people, rental housing is the preferred choice ... and access to affordable rental housing is a springboard upon which homeownership will happen.”
President Bush's policies are geared toward homeownership at the expense of programs that have historically helped low-income households move up to homeownership or avoid homelessness.
The Bush administration wants to cut $1.6 billion out of the Section 8 vouchers program for fiscal 2005, and the president once again wants to eliminate funding for the HOPE VI program, which means many of the 1.2 million households living in public housing will continue to live in substandard housing. This follows the administration locking horns with housing advocates over an April change in the funding formula for the Section 8 voucher program for fiscal 2004. The change caused a shortfall in excess of $300 million. As of early June, HUD said it had found $150 million to offset the shortfall, but housing advocates questioned if the fix would come in time and also expressed concern that the flap further destabilized the voucher program.
Sen. John Kerry criticizes the Bush administration's attempts to cut Section 8 funding and advocates new homeownership legislation. He supports the homeownership tax credit in the Senate and is the sponsor of legislation that would create a National Housing Trust Fund, which seeks to make available 1.5 million housing units to low-income families over 10 years. The Senator is a well-intentioned housing advocate, but he has to deliver some legislative wins if he wants the full support of the housing community.
BUSH: We will continue to push for funding because we believe owning a home lies at the heart of the American dream. A home is a foundation for families and a source of stability for communities. It serves as the foundation for many Americans' financial security. Our budget proposal for fiscal year 2005 again includes $200 million for the American Dream Down Payment Initiative. For the past three years, this administration has asked the Congress for $200 million to fully fund this important homeownership initiative.
We remain committed to increasing homeownership, particularly among minority families. Census data continues to show that while nearly 70 percent of all American households own their own homes, only 50.6 percent of African-American and Hispanic families are homeowners. Intent on closing this homeownership gap, I announced America's Homeownership Challenge, committing the nation to adding 5.5 million minority homeowners by the end of the decade. In fact, more than 1.53 million new minority homeowners were created in the United States since June 2002 when the challenge was issued.
BUILDER: While reducing the down payment for an FHA-insured loan under the Bush administration's Zero Down Payment Initiative is an excellent idea, the downside is that the measure could increase monthly premiums for families who take advantage of the program. Groups such as the NHC are pushing for additional counseling and crisis intervention assistance and quick attention to concentrations of defaults and foreclosures that may occur. Does the administration think such safeguards are necessary?
BUSH: The Zero Down proposal contains sufficient safeguards. In researching this initiative, HUD's projections indicated that the default rate for the new program would most likely be minimally higher than that of the 3 percent down program. Accordingly, we set the premiums at a slightly higher rate for Zero Down, to avoid losses to the Mutual Mortgage Insurance Fund. HUD's research also showed that the majority of families who will use Zero Down have a steady income and can make the required monthly payment—they simply do not have the cash to come to closing. For a $100,000 FHA mortgage, these families would pay about $50 a month more than in the regular program. We also made prepurchase counseling a requirement, which we only require now in our Home Equity Conversion Mortgage program for seniors.
BUILDER: Why doesn't the Bush administration support a National Housing Trust Fund?
BUSH: We believe the affordable housing programs we have proposed and those in place are achieving the same goals as those proposed by advocates of a National Housing Trust. A National Housing Trust would duplicate much of the work already being carried out by HUD's $2 billion HOME Investment Partnerships Program, which plays an important role in addressing the shortage of affordable housing in America. In fact, cities can already use HOME funds for local housing trust funds.
We also believe it would be unwise to take funds from FHA's Mutual Mortgage Insurance (MMI) Fund to pay for this initiative as some legislative proposals have recommended. FHA needs to maintain the reserves that have been built up to deal with economic downturns and to avoid ever requiring a taxpayer bailout.
The MMI capital reserve is similar to the Social Security Trust Fund, in that any attempt to divert these resources from its lawful purpose will be scored with the same budgetary cost as an appropriation directly out of the Treasury. These funds would count as a new expenditure and would increase the deficit.
KERRY: Since 2000, the Bush administration's policies have resulted in the loss of more than 50,000 affordable housing units, including 16,000 for families with children. During my long career in the Senate, I have worked to ease the housing crisis by working to create affordable rental units and homes. I have worked to provide the appropriate funding for the critical programs that help Americans find affordable housing within our current budgetary constraints. Without appropriate federal assistance to ease the affordable housing crisis, many more children and their families will live in substandard housing or become homeless.
BUILDER: The Community Development Homeownership Tax Credit, a bill you sponsor, has broad support in the Senate and in the House of Representatives. Can you tell us more about it?
KERRY: The prospect and achievement of homeownership is an important part of the American dream. It encourages personal responsibility, improves child development, provides economic security, and gives families a greater stake in the development of their communities. But too many low- and moderate-income families living in urban and rural areas across our nation have not been able to share in the dream and benefits of homeownership due to a lack of available housing or the prohibitive cost of the housing that is available. To help reverse this trend, I have introduced the Community Development Homeownership Tax Credit Act to encourage the construction and the substantial rehabilitation of 500,000 homes for low- and moderate-income families in economically distressed areas over 10 years.
BUILDER: As the sponsor of the National Housing Trust Fund, please explain how it will meet the nation's critical housing needs and expand homeownership?
KERRY: The National Affordable Housing Trust Fund Act will spur the construction of new affordable rental units for low-income, working families with children. The legislation seeks to create 1.5 million affordable, mixed-income developments in areas with the greatest opportunities for low-income families over the next decade. Because of the positive effect that this legislation would have on America's children, the Trust Fund was included in the Act to Leave No Child Behind, a comprehensive proposal by the Children's Defense Fund to assist in the development of our nation's children.
Even a program like the Homeownership Tax Credit that has broad support across party lines takes time to get through Congress. Here's a roundup of the major homeownership initiatives before Congress.
Policy: Homeownership Tax Credit Background: The program would give builders a tax credit of up to 50 percent of the cost of new construction or rehabilitation. It seeks to build affordable housing in distressed communities for low- and moderate-income households earning roughly less than 80 percent of a metro area's median income.
Promise: Congress reports that the homeownership tax credit would cost $16.1 billion over 10 years. The NAHB estimates that over 10 years the tax credit could produce as many as 500,000 new and rehabilitated homes and generate $40 billion in wages and $20 billion in federal and state tax receipts and fees. The program would add 122,000 new jobs that would be active in each year that Congress authorizes the program.
Reality: President Bush has been talking about the homeownership tax credit since the 2000 campaign. At press time, 278 representatives and 46 senators endorsed the program, including Sen. Kerry, who is one of the main Senate sponsors. According to the NAHB, the goal is to achieve a consensus bill that will be included in a small business/agricultural tax bill supported by Sen. Charles Grassley (R-Iowa), the Senate finance committee chairman. The homeownership tax credit has broad support on both sides of the aisle. The only reason it may not pass this year is because the congressional session is shortened by the political conventions this summer and time may run out.
Policy: Zero Down Payment Mortgage Background: President Bush proposed the Zero Down Payment Mortgage as part of his fiscal 2005 HUD budget. The proposal would eliminate the 3 percent down payment requirement for families and individuals who buy homes with FHA-insured mortgages.
Promise: HUD estimates that in the first year alone, roughly 150,000 families will choose to take advantage of the program. The Bush administration says most of these buyers will be consumers who could easily afford a monthly payment but because of their circumstances have not had the opportunity to save for a down payment.
Reality: The program does eliminate the standard 3 percent down payment for an FHA-insured loan, but to cover the costs of the program, participants would pay roughly $50 more a month on a $100,000 mortgage. The National Low Income Housing Coalition maintains that what families will save in down payments they will make up for in increased premiums over the life of the mortgage. The premiums are expected to generate $184 million in revenues that will be used to reduce the Bush-era deficit. Still, homeownership programs are popular, and this one doesn't require direct government outlays or that it be part of a tax bill, so it may have a chance.
Policy: American Dream Down Payment Act Background: The act will provide communities across the country with $200 million in grants through a set-aside in the HOME Investment Partnership Program to help home buyers with down payment and closing costs.
Promise: The Bush administration says the program will help some 40,000 families annually over three years, with an average subsidy of $5,000. The program's goal is to increase the homeownership rate among minority groups.
Reality: President Bush has been asking for $200 million annually since fiscal 2002 to no avail. Congress only funded $162.5 million combined in fiscal 2003 and 2004 and nothing in fiscal 2002 because the measure didn't become law until the end of 2003. Housing advocates are upset, claiming the president has never put his full weight behind the program. The National Low Income Housing Coalition estimates that only 16,100 total, not 40,000 families annually as the president originally claimed, will benefit from the American Dream program.
Policy: National Housing Trust Fund Background: Establish a National Housing Trust Fund to serve as a source of revenue for the production of new housing for families with the lowest incomes.
Promise: The goal of the program is to produce, rehabilitate, and preserve 1.5 million housing units over the next 10 years. Seventy-five percent of funds would provide rental housing and 25 percent would provide homeownership opportunities. Funding would come from the profits of the FHA program. Deloitte & Touche once estimated that a National Housing Trust Fund would reach $34 billion between now and 2009.
Reality: Sen. John Kerry is chief sponsor of the National Housing Trust Fund. The Bush administration opposes the fund, claiming that it's not needed and would duplicate the HOME program. More than 4,950 organizations and local leaders have endorsed the fund, and roughly 212 House members support the measure. Support in the Senate is growing, but it is growing slowly. As of early June, eight Senators signed on as co-sponsors. Even if Sen. Kerry wins, it would take at least a couple of years to build the proper support to pass the measure.