Government’s Shifting Emphasis On Housing

Is President Obama’s administration going to use the Great Recession to amend the subsidy for home ownership that came out of President Roosevelt’s Great Depression programs? If an article in the Boston Globe is on target then the answer may be, at least partially, yes.

The Globe article outlines a plan to emphasize rental housing including not only the construction of new rental units but the purchase of existing housing stock for conversion to low income housing units.

The Obama administration, in a major shift on housing policy, is abandoning George W. Bush’s vision of creating an “ownership society’’ and instead plans to pump $4.25 billion of economic stimulus money into creating tens of thousands of federally subsidized rental units in American cities.

The idea is to pay for the construction of low-rise rental apartment buildings and town houses, as well as the purchase of foreclosed homes that can be refurbished and rented to low- and moderate-income families at affordable rates.

Analysts say the approach takes a wrecking ball to Bush’s heavy emphasis on encouraging homeownership as a way to create national wealth and provide upward mobility for low- and working-class families, especially minorities. Housing and Urban Development Secretary Shaun Donovan’s recalibration of federal housing policy, they said, shows that the Obama White House has acknowledged that not everyone can or should own a home.

In addition to an ideological shift, the move is a practical response to skyrocketing foreclosure rates, tight credit, and the economic crisis.

“I’ve always said the American dream should be a home – not homeownership,’’ said Representative Barney Frank, chairman of the House Financial Services Committee and one of the earliest critics of the Bush administration’s push to put mortgages in the hands of low- and moderate-income people.

I guess that the good folks at the Globe are trying to clean up Barney Frank’s image on housing. The whole article is full of counterfactuals insinuating that he was fighting tooth and nail over the past decade to stop the housing disaster in which we find ourselves. But we’ll leave that niggling little point for another post.

Ever since the Depression, the government has laid a heavy hand on the single family home market. Through the tax code and GSE’s home ownership has been among the most heavily subsidized of government programs. Rates of home ownership have grown to levels unknown in most other developed countries and along the way, home ownership morphed into a game of leverage and flipping that eventually gutted the market.

With this announcement it is difficult to discern an actual shift in policy as much as an expansion of government involvement in the housing market. So long as FHA and the GSE’s stand ready to make loans at subsidized rates to homeowners and so long as the tax code provides an incentive to renting, one can conclude that the government intends to encourage home purchases. However, if there is indeed a commitment to substantially expand the pool of low cost rentals the government would be introducing an element of competition to home ownership that should necessarily have an impact on home price appreciation.

There are powerful interests that will fight any meaningful shift in government policy when it comes to housing. The homebuilders and real estate industry have as much clout within the Congress as do the banks and they have a track record of getting what they want as well as beating back policies that might threaten their interests. Moreover, it’s questionable as to whether the American public has lost its taste for home ownership and, incredibly, if they have learned any lessons from the recent crisis.

You can make a good case for a shift in government emphasis when it comes to housing and you can make an even better case for lower home ownership rates that would result from less available leverage for home purchases. Whether you can make a case for reelection should, you as a politician go down that road, is problematic. For that reason alone, I suspect that this program is one that will nibble around the edges and not dramatically alter the status quo.

Note: The Wall Street Journal has an excellent article on the history of homeownership and the governments role in it. It also argues that far fewer American’s should be homeowners. If you have a subscription I suggest you give yourself five minutes to take a look at it.