The Senate Committee on Banking, Housing and Urban Affairs held a hearing on the State of the Housing Market on March 9. Witnesses focused on the long path to recovery still ahead for the economy and the housing market, several years after the burst of the housing bubble.
In his opening remarks, Committee Chair Senator Tim Johnson (D-SD) noted the impact of the housing market on the lives of low income families. With the housing market still damaged by the foreclosure crisis and the recession, families are reeling. Chairman Johnson pointed to the lack of affordability in the rental market and the lack of availability of workforce housing as key challenges. Quoting HUD’s Worst Case Housing Needs report, the Chairman said that the number of very low income households paying more than 50% of their income towards rent or living in substandard housing increased by 20% between 2007 and 2009 (see Memo, 2/4).
Chairman Johnson framed the 4% increase in family homelessness between 2008 and 2009, and the 12% increase of households doubled up, as an indicator of the severity of the housing crisis. Increases in families doubled up are a particular concern for Native American communities, said the Chairman.
Committee Ranking Member Senator Richard Shelby (R-AL) called on the banking industry to be responsible for its own actions and warned against the government implementing a “regulatory shake down.” Dealing with the continued wave of foreclosures is an overall economic development issue for the country, said Senator Shelby.
Susan Wachter of the University of Pennsylvania, Mark Calabria of the CATO Institute, David Crowe of the National Association of Home Builders and Ron Phipps of the National Association of Realtors testified on the current state of the housing market in relation to homeownership. Dr. Watcher suggested that the excess of properties made vacant by foreclosures that still exists could be absorbed by the market in the next two to three years.
Dr. Calabria stressed that solutions to the current excess of housing inventory may require that prices decrease further. Dr. Calabria testified that there are great variations across housing markets and that a number of markets are still relatively unaffordable, despite some price decline. It is important that solutions to address excess stock and price readjustments move away from the idea that the market should bear risk and that, instead, this risk should be passed on to the consumer, Dr. Calabria said.
Mr. Crowe discussed the importance of new housing construction in boosting the economy. In previous recessions, he said, the housing market has lead the economy out of the recession with high growth rates; current housing growth rates are low and therefore are not supporting the recovery at the same magnitude, Mr. Crowe testified. The housing industry has lost 2.8 million jobs, half in construction and half in the supply industry, due to the recession, he said. Mr. Crowe feared that the current rate of production of 600,000 units per year is not sufficient to keep up with the rate of population growth. He estimated that 1.7 million units are needed to keep pace with population increases.
Both Mr. Crowe and Mr. Phipps praised the Mortgage Interest
Deduction (MID) that homeowners can take on mortgages for first and
second homes valued up to $1 million dollars. Mr. Phipps pointed to
former President Regan’s prioritization of the MID as a policy position
with which the Realtors agree. He also shared his belief that
homeownership is a prerequisite for a household to achieve self
Jeffrey Lubell of the Center for Housing Policy discussed the housing challenges that low income households still face in the wake of the housing crisis. Despite a decline in home prices, said Mr. Lubell, housing affordability for low and moderate income households has worsened. This is due to a decline in both the incomes of low and moderate income households, a decline in employment opportunities and an increase of rents. While the homeownership market declined about 1% for working families, rents for these households increased, Mr. Lubell said. Mr. Lubell also noted that rural communities face significant affordability challenges.
When asked by Senator Johnson about structural barriers to creating affordable rental housing, Mr. Lubell said that the equity market for Low Income Housing Tax Credits is returning and that credit through Fannie Mae and Freddie Mac is helping remove barriers. Mr. Lubell also said that energy efficiencies in housing and transportation could in part help to bring down costs for low income households.
Senator Shelby asked panelists whether the best way to spur the housing market is through economic growth and several panelists agreed. Dr. Calabria said that reducing unemployment and shifting incentives for banks to put funds into risk making activities such as construction and small businesses will be important.
Access transcripts of testimony and view the hearing webcast at http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=abfc976f-f14f-46a9-807f-f1b0cd1b718e