The Future of Affordable Housing - September 26, 2013

The Future of Affordable Housing Speaker Series

Federal Reserve Bank of Atlanta

Community and Economic Development Group
Regional Economic Information Network
Center for Real Estate Analytics

Experts Explore Future of Housing

As the U.S. housing market continues to recover, lawmakers are considering a variety of housing reforms that could affect homeownership rates and rental markets over the near and long term.

Prominent among them are the policy recommendations of the Bipartisan Policy Center's Housing Commission. Issued in February, the commission's report addresses many of the key challenges facing the nation's housing system, including housing finance reforms, increased demand for affordable rental units, and demographic changes driven by immigration and an aging population.

The Atlanta Fed explored these issues during a September 26 event featuring two experts on the topic: Ron Terwilliger, founder and chairman of the Urban Land Institute's Terwilliger Center for Housing, and Dan Immergluck, Georgia Tech professor of city and regional planning.

Rebalancing federal housing funds
The nation is facing a "sustained rental crisis," said Terwilliger, who served on the Housing Commission. The crisis is being driven by growing demand for affordable units. For example, there are currently 41 million renters in the United States, and that number is projected to grow in line with demographic trends. Further, about a quarter of those renters spend half of their income on housing, he said.

In response, Terwilliger called for a significant rebalancing in federal housing subsidies, which are currently weighed heavily toward homeowners. Indeed, a large share of the roughly $200 billion in housing aid goes to promote homeownership through incentives such as the mortgage interest tax deduction. Instead of spending more, Terwilliger explained, the government should reallocate a greater share of those funds toward boosting affordable rentals.

Homeownership still a good option
Although the benefits of homeownership have diminished for many households, in most cities, "homeownership is still a very appealing option" for moderate-income and working-class families, said Georgia Tech's Immergluck. In most cases homeownership provides greater options, more control, and stability, he explained.

Several proposed reforms would create a much smaller role for the federal government in the housing finance system. However, an important element of future housing finance policy will be preserving access to affordable long-term fixed-rate mortgages, Immergluck noted.

"I am very concerned that we will end up with a fragmented housing finance market that looks a lot like the subprime market did five years ago," Immergluck said. In a fragmented market, people with less income and wealth and slightly lower credit scores would pay more for their mortgages, making it difficult for them to stay current on their payments, he explained. These dynamics set in motion a vicious cycle of "those who can afford it the least having to pay the most for their mortgages."