Housing Session Summary
Moderator: Paul E. Kaboth, Federal Reserve Bank of Cleveland
Discussant: Alexander Chen, University of Maryland
"Housing Vouchers and the Price of Rental Housing"
Amanda Ross (presenter), West Virginia University and Michael Eriksen, University of Georgia
"The Benefits of Pre-Purchase Homeownership Counseling"
Hoa Nguyen (presenter), Peter Zorn, and Gabriela Avila, Freddie Mac
"The Social Impact of Home Rehabilitation in Low-Income Neighborhoods"
Erin Graves (presenter), Federal Reserve Bank of Boston
The housing market has experienced an acute decline in prices and a steep increase in mortgage delinquencies and foreclosures over the past several years. These challenges have been more pronounced in low- and moderate-income communities. This panel addressed the impact of several initiatives to mitigate these problems, from the effect of housing vouchers on the price of rental housing to the effectiveness of pre-purchase homeownership counseling on reducing foreclosure rates, and the social impact of home rehabilitation in low- and moderate-income neighborhoods.
Using information from the American Housing Survey, Amanda Ross of West Virginia University studied the impact of an increase in the supply of housing vouchers on the price of individual rental housing units. Although her results do not show an effect on the overall price of rental housing, she finds different effects based on the unit's rent prior to the expansion as well as the supply elasticity of the metropolitan statistical area (MSA). Her paper also shows that the price increases are concentrated in those MSAs that are more supply constrained and that the statistically significant increase in rental prices near the middle of the rental distribution is much smaller than what previous researchers have found. Consequently, her results suggest that future housing policy should consider specific city attributes when targeting different subsidies. Her paper also suggests that cities with a relatively elastic housing supply are perhaps best suited for housing vouchers, and that supply-based rental subsidies may be better suited to areas with a relatively less elastic housing supply.
Hoa Nguyen of Freddie Mac examined the impact of pre-purchase homeownership counseling on the reduction of mortgage delinquency rates for mortgages originated between 2004 and 2008. Her results demonstrate that pre-purchase homeownership counseling can significantly reduce the delinquency rates of borrowers. She finds that all types of counseling programs are successful, but the most effective counseling tool is to receive individual counseling. Home study and classroom counseling are also associated with lower delinquency rates. Even though counseling should be required for high-risk borrowers in affordable lending programs, an effective strategy is to provide more counseling through individual, home study, or classroom formats. Her results also support the positive impact of counseling on first-time home buyers' repayment behavior. She posits that pre-purchase counseling ultimately benefits lenders, given that borrowers who are counseled have significantly reduced default rates compared to those who did not receive counseling.
The Boston Fed's Erin Graves studied if the rehabilitation of abandoned, foreclosed homes will improve neighborhood social and physical conditions. Employing mixed methods, Graves assesses the social and physical conditions of blocks that received federally funded Neighborhood Stabilization Program (NSP) intervention in Boston both before and after it occurred, then compares these indicators to a control group of blocks that did not receive the intervention. Her results indicate that social conditions in NSP neighborhoods have improved, but likely not due to the NSP intervention, since improvements occurred in both the treatment and control conditions. Rather, the observed improvements are more tightly correlated with higher levels of physical order. She argues that assessments of neighborhood physical order are not related to the presence or rehabilitation of foreclosed homes. Her study implies that researchers, policymakers, and practitioners need to know more about the link between home price changes, physical distress, and social disorder when seeking to promote neighborhood-level foreclosure intervention policies or implement a neighborhood stabilization strategy.