Housing affordability – the worst in our lifetime. Congress can help change that in bipartisan legislation.

Weekly update from the National Housing Conference

By David M. Dworkin, President and CEO

Housing affordability is the worst it has been in the lifetime of most Americans and there are no indications that it’s going to be any easier to buy or rent a home anytime soon. It’s not hard to understand why many Americans are so cynical and so open to populist voices that compete with each other over who can be the most shrill, reactionary, and dismissive of our economic successes like falling unemployment and rising GDP.

The politics of the economy isn’t easy for any sitting president. The politics of foreign policy isn’t typically any better. When I served as a political appointee at the U.S. State Department, President George H.W. Bush had an approval rating of 89% the day before he gave his Desert Storm victory speech to a joint session of Congress. I remember watching the speech with my boss and mentor, Janet Mullins Grissom, in her office that night. After the President finished, she turned to me and said, “We could lose this election.” I was shocked. “You need to get some rest,” I said. “No,” she replied. “This speech needed to be about Domestic Storm, not Desert Storm. Political capital is like milk in the back seat of a hot car. It goes sour very fast.” 18 months later I was working on my resume, and by November 1992, I needed it. We lost because it was, “the economy, stupid,” not the new world order we built from the ashes of the Soviet Union, the end of the dictatorship of Sadaam Hussein, or peace in Central America or the Middle East. The fact that the economy had already begun to improve meant nothing, because voters didn’t feel it.

People don’t feel productivity or employment (unless they lost their job, which is never the case for most Americans). They certainly don’t feel geopolitics. They feel the price of milk, and meat, and gas, and housing, because it’s the biggest expense of almost any monthly budget. Housing is also closely linked with our perception of upward mobility. There’s an additional cruel twist to inflation. Everyone feels it going up. No one feels it slowing down. And short of an economic catastrophe, they don’t go back down. Over the past year, wage growth has exceeded inflation by about two points, and Americans have more discretionary income than they did a year ago. The problem is Americans don’t feel it. One of the major drivers of this feeling is housing.

Housing inflation has been a major driver of the Core Consumer Price Index (CPI). Unfortunately, it has been compounded by the failure to effectively address housing supply by multiple administrations, including the current administration, and both parties in Congress over several changes in leadership. This is beginning to change, but will it be too late? Incumbents of both parties will find out next year. We can still reverse this trend, but only if there is adequate political will. Housing can’t be number five on a list of ten priorities, when only three get done. We already have a closet full of participant ribbons.

How bad is the housing affordability in our lifetime? Let’s look at two occupations which represent the heart and soul of the middle class: nurses and teachers. In 2023, a Registered Nurse could afford to buy a home in 90 of 360 markets in the United States. That’s right. According to NHC’s Paycheck to Paycheck database, in 201 markets, 52% of metro areas, buying a home with an income below $100,000 is a non-starter. For middle school teachers, it’s marginally better: 122 markets are affordable. This is because the income needed to buy a typically priced home nearly doubled from $73,778 in September 2021 to $120,951 in September 2023. Two factors drove this increase, an increase in mortgage interest rates from 3.01% to 7.31% and an increase in the median home price from $299,487 to $348,539. Housing is a continuum. The fewer homeowners, the more renters. And more renters mean higher rents. At the bottom of the economic spectrum, we have more people than ever entering homelessness. More...

News from Washington | By Brittany Webb

Middle-income tax credit bill introduced to mixed reaction

U.S. Sens. Dan Sullivan (R-Alaska), Senate Finance Committee Chair Ron Wyden (D-Ore.), and U.S. Reps. Jimmy Panetta (D-Calif.) and Mike Carey (R-Ohio) introduced the Workforce Housing Tax Credit (WHTC) Act. The bill, an updated version of a proposal Wyden introduced earlier this year as part of his Decent, Affordable, Safe Housing for All Act, would create a tax credit for middle-income housing that mirrors the Low-Income Housing Tax Credit (LIHTC). If enacted, the new middle-income housing tax credit (MIHTC) would increase the supply of affordable housing for middle-income families who earn too much to qualify for low-income affordable housing but still not enough to afford housing near where they work. The program is estimated to finance 344,000 affordable rentals. The bill also allows some flexibility of funding between the MIHTC and LIHTC programs by allowing housing finance agencies to transfer their MIHTC allocation to their LIHTC allocation at any time to meet their community's needs best.

"Right now, America's nurses, firefighters and teachers are struggling to find affordable housing near the communities they serve. More must be done to fill the 'missing middle' between low-income housing and million-dollar homes," Wyden said. "Establishing a middle-income tax credit will guarantee more housing, and the flexibility our bill provides will help housing finance agencies best meet the needs of their individual communities."

While the National Association of Home Builders, the Housing Advisory Group, the National Multifamily Housing Council, and the National Apartment Association support WHTC, the National Low Income Housing Coalition (NLIHC) strongly opposes it. NLIHC voiced concerns about directing funding to programs that divert scarce resources away from extremely low-income groups who are most at risk of experiencing homelessness, calling it a "wasteful and misguided" policy.

Lawmakers introduce bill to ban single-family institutional investors

Sen. Jeff Merkley (D-Ore.) and Rep. Adam Smith (D-Wash.) introduced a bicameral bill banning hedge funds from purchasing and owning single-family homes last week. The End Hedge Fund Control of American Homes Act of 2023 would require any corporations, partnerships, or real estate investment trusts that manage funds pooled from investors to sell off all the homes they own over the next decade. The bill also prohibits them from owning any single-family homes in the future. Reps. Jeff Jackson (D-N.C.) and Alma Adams (D-N.C.) also introduced the American Neighborhoods Protection Act, which would require corporations that own more than 75 single-family homes to pay $10,000 per home annually into a Housing Trust Fund that provides down payment assistance grants.

The impact of institutional investors in housing is more nuanced than treated by these bills, as discussed recently during NHC's Solutions for Affordable Housing convening. According to research from the Urban Institute, so-called "mega-operators" are not to blame for the affordable housing crisis. However, they tend to be concentrated in certain neighborhoods, often with high populations of people of color, coinciding with increased housing costs. Further, it was suggested that larger operators should be required to improve tenant experiences as operators that can provide such services.

"The housing in our neighborhoods should be homes for people, not profit centers for Wall Street," said Merkley. "It's time for Congress to put in place commonsense guardrails that ensure all families have a fair chance to buy or rent a decent home in their community at a price they can afford."

Some housing groups push back against that narrative, emphasizing that lack of overall supply remains the main issue.

"Policies really need to be shaped and crafted so that they support the production, investment and development of new housing," s aid David Howard, the Chief Executive of the National Rental Home Council. "I think bills that work against that ultimately are just going to perpetuate the challenges we're already facing."

Fed holds target funds rate steady, forecasts reductions in 2024

The Federal Reserve Board's Federal Open Market Committee (FOMC) maintained the current target federal funds rate at 5.25-5.5% and f orecasted a series of three quarter-point cuts in 2024. This FOMC meeting, its final of the year, marked the fourth pause of rate hikes in 2023, a welcome r eprieve from previous rate increases.

"While we believe that our policy rate is likely at or near its peak for this tightening cycle, the economy has surprised forecasters in many ways since the pandemic, and ongoing progress toward our 2 percent inflation objective is not assured," said Chairman Jerome Powell during a press conference. "We are prepared to tighten policy further, if appropriate."

The Mortgage Bankers Association met the announcement with enthusiasm and forecasted declines in mortgage rates in time for the spring housing market.

424,000 households connected to HUD homelessness support services

HUD significantly expanded efforts to combat homelessness in 2023, and the agency said it assisted over 424,000 households with homeless support services, aiding them in exiting or preventing homelessness. This marks a 15% increase in grants provided to Continuums of Care, reaching 330,000 people compared to 2022. The collaboration with Public Housing Authorities helped more than 94,000 households find stability, including 8,200 through public housing, 56,900 via incremental Housing Choice Vouchers, and 28,200 through the Emergency Housing Voucher program.

This progress builds on the previous year's achievements, with the number of people transitioning from homelessness to permanent housing increasing by 8% from 2021 to 2022. Initiatives like the American Rescue Plan, the largest single-year federal investment into ending homelessness, drove those efforts. HUD will publish a comprehensive report on individuals transitioning from homelessness to permanent housing in early 2024.

"The partnerships between housing authorities and Continuums of Care, the extra support for residents' housing searches, landlords working with tenants to lease up quickly, and other flexibilities have demonstrated the power of creating programs that can meet urgent, local needs at a time of crisis," said HUD Principal Deputy Assistant Secretary for Public and Indian Housing Richard Monocchio.

Ginnie Mae delivers FY2023 financial report

Ginnie Mae published its Annual Financial Report for fiscal year 2023, highlighting its financial performance and accomplishments, including supporting over 1.2 million households. The report notes that Ginnie Mae continuously enhanced its securitization platform and digitalization capabilities for issuers enabled by technology migration. The company also expanded access to Ginnie Mae through partnerships and support for the FHA Home Equity Conversion Mortgage program through program enhancements. Ginnie Mae also rolled out enhanced low-to-moderate income MBS investor disclosures and sustainability frameworks that outline the social and environmental impact of Ginnie Mae MBS for domestic and international investors who have environmental, social and governance portfolio mandates and goals.

"I am impressed with our financial results and the incredible impact Ginnie Mae has had on millions of American households, even in the face of a challenging housing market," said Ginnie Mae President Alanna McCargo. "As the Annual Report shows, we continue to manage an incredibly complex program, numerous risks, and continued growth with strength and precision, and we are managing a number of emerging risks in the housing market with incredible efficiency. I am very proud of our outstanding team for continuously delivering results for the American people during a time when housing affordability has been greatly challenged."

Chart of the week

Asking rents decline YoY

A new chart from Bill McBride's CalculatedRisk blog compares year-over-year (YoY) asking rents across several data sources. The blog post shows that new supply coming on the market may be helping to lower asking rents. The data shows a sharp increase in rents coinciding with household formations in 2021. This leads to suspicions that formation would slow and YoY asking rents would decelerate after massive increases in 2021 and 2022.

What we're reading

An o p-ed in The Hill from former Sen. Rob Portman (R-Ohio) and former U.S. Treasury Secretary Robert Rubin argues for expanding the Low-Income Housing Tax Credit, which facilitated the construction of new affordable apartments in Cincinnati, and passing the Neighborhood Homes Investment Act to improve access to affordable housing. There is strong bipartisan support for both bills, and the authors outline the positive outcomes of acting through Congress to support much-needed investments in housing.

National Economic Advisor Lael Brainard spoke with Yahoo Finance Live about the White House's focus on improving housing affordability. The conversation highlighted the Biden Administration's push for tax credits, downpayment assistance, and other incentives to make housing more affordable. Brainard expressed some optimism regarding market rates coming down and the bipartisan interest in affordable housing solutions.

A New York Times article tells the story of how record rent burdens batter the lives of low-income Americans. It notes that more tenants than ever have to spend more than half of their incomes on rent, forcing them to make the difficult tradeoffs that come with cost burdens like purchasing food and medicine, with very little room for error. The article also explains how the constant mental and emotional tax of the economic strain can physically impact people and the consequences of the vicious cycle of poverty.

The week ahead

Monday, December 18

NHFTA Basics of Fair Housing (HUD Exchange), 1 – 4 PM ET

Tuesday, December 19

NHFTA Basics of Fair Housing (HUD Exchange), 1 – 4 PM ET

Wednesday, December 20

NHFTA Basics of Fair Housing (HUD Exchange), 1 – 4 PM ET

Thursday, December 21

NHFTA Basics of Fair Housing (HUD Exchange), 1 – 4 PM ET

STAY CONNECTED

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The National Housing Conference is a diverse continuum of affordable housing stakeholders that convene and collaborate through dialogue, advocacy, research, and education, to develop equitable solutions that serve our common interest.

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