Mapping FHA Loans Shows Where Cities Need More Housing

Real Estate News & Analysis

Mapping FHA Loans Shows Where Cities Need More Housing

In the hottest job markets, federal loan programs aren’t helping people land homes in the areas that are closest to the best jobs.

Federal Housing Authority (FHA) borrowers are often working-class first-time homebuyers. In hot job markets, the supply of affordable homes close to work is so limited that FHA homebuyers chase affordability into neighborhoods that are far from their jobs. Mapping the parts of booming cities that have the fewest FHA borrowers can show city planners and homebuilders where to target new home construction.

One example of a hot job market is Seattle. In the city of Seattle, data from the Home Mortgage Disclosure Act (HMDA) reveals that FHA loans made up just 5 percent of all home loans last year, compared to 22 percent nationwide, or even 19 percent in Seattle suburbs like Mill Creek that are more than an hour away by bus.

Figure: FHA loan share in the Seattle area (left), Opportunity Score in the Seattle area (right)

Figure: FHA loan share in the Seattle area (left), Opportunity Score in the Seattle area (right)

This means that people who depend on FHA loans are trading ownership for opportunity, missing out on proximity to jobs. And it’s not just Seattle. The pattern holds in other booming cities. Families in Washington, D.C. that depend on FHA loans are overwhelmingly settling in the areas with the longest commutes.

Figure: FHA loan share in the Washington, D.C. area (left), workers with a commute longer than one hour in the Washington, D.C. area (right)
Figure: FHA loan share in the Washington, D.C. area (left), workers with a commute longer than one hour in the Washington, D.C. area (right)
The problem is a demand for homes that’s far stronger than the housing supply in the locations that have the best job opportunities. 
The solution is to build more homes close to jobs, and this means updating local zoning laws so builders are encouraged to make more housing right where it’s needed the most. This is a slow process because supply moves slower than demand in the housing market. The good news is that builders are already responding in some cities, and housing supply is starting to catch up to demand in some of the hottest job markets in the country.

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