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