MID, Rental Housing Policy Discussed at House Hearing on Housing Finance

The House Committee on Financial Services held a hearing on June 12, “Beyond GSEs: Examples of Successful Housing Finance Models without Explicit Government Guarantees.” Witnesses and Representatives discussed housing finance models in different countries including Canada, Denmark, Germany, and the United Kingdom. The hearing marked the tenth housing finance reform hearing held by the Committee, or one of its Subcommittees, in the 113th Congress.

Committee Chair Jeb Hensarling (R-TX) said in his opening statement, “Notwithstanding the damage they have caused in their checkered past, many cannot conceive of a housing finance market without a government guaranteed Fannie and Freddie.” Chair Hensarling added, “By almost any measure Fannie and Freddie have not propelled the US to housing finance nirvana. When compared to other modern industrialized nations – whether we look at rates of home ownership or spreads between mortgage interest rates and sovereign debt, the US can usually be found either at the middle or bottom of the pack. However, there is one category where the US clearly has led. Regrettably, that category is foreclosure rates. In other words, only in America can you find a government that subsidizes housing more, so that we the people can get less.” 

While the Committee continues to investigate alternatives to the current housing system, some observers have opined that momentum for housing finance reform has declined given that the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac have now returned to profitability. NLIHC asserts that with renewed profitability, the GSEs’ obligation to make contributions to the National Housing Trust Fund should be activated.

Witness perspectives varied on whether the GSEs should be abolished or reformed. Witness Alex Pollock of the American Enterprise Institute said in his testimony, “You can be a private company. Or you can be part of the government. But you should never be allowed to pretend you are both. In other words, Fannie and Freddie should cease to be GSEs.” 

In contrast, witness David Min of the University of California, Irvine said in his testimony, “we may be best served by enacting reforms of the current system, rather than trying to impose radical changes or importing European models of housing finance into our country. This appears to be the same conclusion that was reached by the Bipartisan Policy Center, Senators Bob Corker (R-TN) and Mark Warner (D-VA), and most other policy groups and academics that have thought about housing finance reform, as they have all proposed some variation of implementing substantial reforms on a government-backed MBS system of funding residential mortgages.”

Also discussed was balanced housing policy, and government subsidization of mortgages and rental housing. Committee Ranking Member Maxine Waters (D-CA) said “the majority on the Committee is not interested in addressing rental housing needs, as sequestration pushes renters in Section 8 housing.” Ranking Member Waters added that other countries provide significantly more support for rental housing than the United States. 

Ms. Waters asked witness Lawrence White of New York University whether he was ready to recommend elimination the mortgage interest deduction. Dr. White responded “I would do it in a heartbeat because most middle class people don’t benefit from the mortgage interest deduction because they don’t itemize.” Dr. White added, “If you keep it, at least convert it to a credit so that lower income people can get a benefit.”

Representative Joyce Beatty (D-OH), said “we need to have a balance of policies with rental housing in addition to homeownership.” Ms. Beatty asked the witnesses whether in their view, rental markets were able to absorb the growing demand for rental housing. Witness Michael Lea of San Diego State University said homeownership rates have declined in recent years, and that rental markets have been able to absorb the demand. 

Representative Keith Ellison (D-MN) asked Mr. Min about points raised in Mr. Min’s testimony about higher rates of government rental subsidies in countries other than the United States. Mr. Ellison further said that research indicates that more than 80% of the lowest income families in the United States pay more than half their income for rent. Mr. Ellison added that there is a shortage of 7.1 million affordable and available rental homes in the United States. Mr. Min said that other countries subsidize rental housing at a much wider level than the United States, and that rental subsidies are the most common form of housing assistance in different countries. 

An archived hearing webcast and all witness testimony are available at: http://1.usa.gov/12eQiwX