The housing market, like an onion, has several layers. The outer layer we can see is the for-sale market. It’s healthy and vibrant, with housing activity at record highs and mortgage rates at rock-bottom lows.
Peel into the onion and things look different. There aren’t enough affordable homes for buyers or renters. Homebuilding nosedived after the housing bust and hasn’t recovered. Today, an economy that should be producing 1.6 million housing units a year just to keep up with household growth is about 400,000 units short, even though we’re having the best year for residential construction since 2007.
This inventory shortage is the onion’s decaying inner core. For decades, homeownership has been the most reliable seed of wealth creation for the middle class. That’s now at risk because of the lack affordable homes in thriving neighborhoods, limited access to financing even at record low mortgage rates, and sky-high rents that eat into downpayment savings. Americans in Rust Belt cities are still struggling to escape underwater mortgages and the aftermath of the foreclosure crisis.
Yet housing policy has all-but-vanished from election-year rhetoric. Republican Donald Trump is the first presidential nominee to have built a brand on real estate. If he wins the White House, here are four things he should do to make the housing market great again.
1. Ignore the siren song of mortgage finance reform
Reform of government mortgage insurers Fannie Mae and Freddie Mac has been controversial on Capitol Hill longer than millennials have been alive. Though there’s agreement that the government footprint in housing should be reduced, right now there’s nothing to replace it with. Fannie and Freddie insure two-thirds of new mortgages in the U.S. The private market insures a measly 5 percent. The next president should avoid wasting time on a political Gordian knot and first figure out how to court private capital back into the mortgage market. Then we can have a real alternative to Fannie and Freddie.
2. Connect affordability with mobility
Too often a person’s zip code determines their economic mobility. Nearly half of all renters are cost burdened, meaning they pay 30 percent of their income on rent. A quarter of those spend half their paychecks to keep a roof over their heads. And only one in four people who qualify for federal subsidies actually receives them. The federal government has a tool it doesn’t use to bring families out of poverty and into opportunity. By increasing subsidies to households who need them and helping them move to thriving communities near jobs and functional schools, the next president can help working families make a better life for themselves.
3. Build, baby, build
We need more housing. I mentioned that already. But we need more transit and infrastructure spending, too, to make sure no neighborhood in America suffers due to isolation and neglect. Political dysfunction in Congress has prevented the federal government from making the infrastructure investment needed in America’s cities. Our families pay the price.
4. Remember the Rust Belt
This one is personal. As an Indiana native, I saw how manufacturing’s decline affected the housing market. Stately colonials, whose manicured lawns use to fill with families along the parade route of my hometown’s main street, now stand vacant, unloved and unwanted. Towns in Ohio, Michigan, Pennsylvania, Indiana and Illinois never had a boom and bust in home prices. Their decay was due to something far more long lasting—job loss and population decline. It’s an open question whether foreclosure-choked neighborhoods will ever be a good investment for a new generation of homebuyers. Unlike cities along the East and West coasts, time won’t fix these communities, only jobs will. They need our attention and reinvestment in their local economies before homeownership can become a great investment again.