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Affordable Homeownership: Challenges and SolutionsBrett Theodos
September 12, 2017
Challenges
Homeownership rates declined for most age groups
Sources: US Census 1990, 2000, 2010; American Community Survey 2015
35%
45%
55%
65%
75%
85%
1990 2000 2010 2015
65-74
45-54
All
25-34
Homeownership rates lower for Hispanics, African-Americans
35%
45%
55%
65%
75%
85%
1990 2000 2010 2015
White
Hispanic
African-American
Housing demand growing faster than supply
Sources: Goodman et al. (US Census data, Urban Institute Calculations)
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Number of units (thousands) Housing Supply 2-yr Average Demand
Supply and Demand for Housing
-600
-400
-200
0
200
400
600
800
1,000
1,200
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Number of units (thousands)
Difference Between Housing Supply and Housing Demand
Credit box remains tight after the crisis
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
PercentTotal default risk
Borrower risk
Product risk
Reasonable
lending
standards
Default Risk Taken by the Mortgage Market, 1998Q1–2016Q3
Sources: Goodman et al. (eMBS, CoreLogic, HMDA, IMF, and the Urban Institute.)
100
120
140
160
180
200
220
240
260
1988 1991 1994 1997 2000 2003 2006 2009 2012 2015
Median Rent, SA and IndexedMedian Household Income, Indexed
Rents growing faster than incomes
Sources: U.S. Census Bureau Housing Vacancy Survey, U.S. Census Bureau Current Population Survey (CPS), and Urban Institute calculations .
Nominal dollars, indexed to 100
Median Rent vs. Household Income, 1988-2015
Source: Hacker et al. 2011
Most Americans have little to no liquid wealth
$-
$20
$40
$60
$80
$100
$120
$140
Bill
ion
s
Mortgage interest
deduction
State/local property
tax deductions
Capital gains
exclusion
Sources: JCT 2017; House approp. 2017
HUD
LIHTC
High levels of federal spending, inflates home prices, but does relatively little to encourage homeownership
Mortgage interest
deduction
Capital gains
exclusion
Sources: HUD, Novogradac
HUD
$0
$10
$20
$30
$40
$50
$60
$70
1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015
HOME
CDBG
Inflation adjusted per-capita spending
Grant programs not keeping pace with inflation
Solutions
Solutions
1. Homebuyer preparation- Coaching (long-term)- Counseling (medium-term)- Education (short-term, classroom based or online)
Gains under financial coaching
• Increased # deposits, savings amount, amount in emergency fund
• Decreased debts
• Reduced late fees, “curing”
• Increased credit score
• Lower financial stress
• Improved satisfaction with financial situation
• No change in using a budget, having checking/savings accounts, any AFS use, bankruptcy, delinquencies, financial knowledge
Source: Theodos et. al 2015
Solutions (cont’d)
2. Downpayment supports- Closing cost help- Downpayment assistance- Matched savings, IDAs
Solutions (cont’d)
2. Downpayment supports- Closing cost help- Downpayment assistance- Matched savings, IDAs
3. Modest purchase incentives and supports- First-time buyer tax credit- Production tax credits- Second mortgages
Solutions (cont’d)
4. Deep subsidies with sharing in capital gains- Shared appreciation loans
private sector investment, capital gains divided between owner and investor
- Shared equity long-term affordable programs such as community land trusts, deed-restrictions/ inclusionary zoning programs, limited equity cooperatives
Wealth creation under shared equity
0%
10%
20%
30%
40%
50%
60%
70%
KingCounty
Burlington SanFrancisco
Davis Duluth Boulder Atlanta
Program IRR
10-year Treasury Bonds IRR
S&P 500 Index Fund IRR
Source: Temkin, Theodos, Price 2013
Solutions (cont’d)
5. Alternative credit products, pathways to ownership
- High LTV loans - More flexible credit standards- Rent to own - Housing Choice Vouchers/LIHTC to own
Solutions (cont’d)
5. Alternative credit products, pathways to ownership
- High LTV loans - More flexible credit standards- Rent to own - Housing Choice Vouchers/LIHTC to own
6. Lower production costs- Decreasing production costs for SF homes- Modular