Congress Examines Governmental Barriers to Housing Affordability

Earlier this week, the House Financial Services Committee’s Housing and Insurance Subcommittee held a hearing titled, “Housing Affordability: Governmental Barriers and Market-Based Solutions,”

The focus of the hearing was on the continuing affordability challenges that many currently face in both the single-family housing and rental markets. Witnesses provided testimony on the factors that have contributed to those affordability challenges, particularly government-created barriers such as restrictive land-use and zoning policies, and various market-based solutions to address them.

Witnesses spanned the gamut of the housing industry, including:

• Seth Appleton, President, U.S. Mortgage Insurers (USMI)
• Norbert Michel, VP and Director, Center for Monetary and Financial Alternatives, CATO Institute
• Dr. Emily Hamilton, Senior Research Fellow and Director of the Urbanity Project, the Mercatus Center at George Mason University
• Arianna Royster, President, Borger Residential, on behalf of the National Apartment Association (NAA)
• Diane Yentel, President and CEO, National Low Income Housing Coalition (NLIHC)

“From urban to rural America, there simply aren’t enough affordable homes, and the gap between supply and demand continues to grow,” said Rep. Maxine Waters, as she opened the hearing. “During one of the worst housing and homelessness crises our nation has seen, House Republicans have put forward proposals that only exacerbate the problem—namely, they want to slash Federal housing programs by 30% and hope the private sector fixes it. It is also telling that despite mortgage rates nearly quadrupling to 8% and housing costs going up 47% since the pandemic, this is the first hearing focused on housing affordability.”

Housing accounts for roughly 15%-18% of the U.S. economy, according to the National Association of Home Builders (NAHB), and is the single-largest expense for many American families. And despite a market with tremendous federal support, including the contributions of Fannie Mae and Freddie Mac, as well as more than $1 trillion spent on programs run by the U.S. Department of Housing and Urban Development (HUD) since 2000, rates nearing the 8% mark at 23-year highs, low inventory and high prices has made the American dream of homeownership unaffordable for millions of Americans.

“Homeownership that requires a 20% down payment is simply out of reach for many Americans, particularly the first-time homebuyers who have traditionally propelled the market forward,” said Appleton during his testimony. “According to a recent report from the National Association of Realtors covering July 2022 to June 2023, the first-time buyer share of the market was 32%, well below the average of 38% since 1981, and their typical down payment was 8%. Even more striking is that it would take a household earning the national median income of $70,784 in 2022 35 years to save a 20% down payment plus closing costs for a $392,800 home, the median sales price for a single-family home in 2022. That’s $90,334 in cash that a borrower would need to bring to the closing table.”

Some of the major factors highlighted during the hearing which have impacted affordability include:

• A lack of housing inventory in growing and high-demand areas, resulting in home price and rent growth that have outpaced household income
• The high cost of inflation, including higher interest rates, lingering supply chain issues, and a tight labor market stemming from the pandemic
• Government housing finance policies that crowd-out private sector capital and hamper innovation
• Outdated local-level regulatory obstacles that restrict supply and distort markets, including restrictive land-use/zoning policies and misguided rent control

“Without affordable housing options, more than 10 million extremely low-income and very low-income renter households, disproportionately people of color, pay at least half their income on rent, leaving them without the resources they need to put food on the table, purchase needed medications, or otherwise make ends meet,” said Yentel during her testimony on behalf of the National Low Income Housing Coalition. “Paying so much of their limited income on rent leaves the lowest-income families always one financial shock–an emergency or unexpected expense–from facing eviction and, in the worst cases, homelessness. On any given night, more than half a million people experience homelessness, and millions more are at risk.”

As the panelists discussed, improved coordination among governmental housing efforts, including understanding the appropriate role for each housing program, can help target government resources to areas of true need. This will also allow for a more viable and innovative role of the private sector in originating new housing supply nationwide.

“Prior to the 2008 financial crisis, the federal government controlled a dominant share of the U.S. housing finance system, and that share has expanded,” noted Michel during his testimony. “As of December 31, 2020, Fannie and Freddie (both of which remain in government conservatorship) had combined total assets of $6.6 trillion, representing approximately 42% of the nation’s outstanding mortgage debt. From 2008 to 2019, the FHA’s annual market share of purchase loans ranged from 16.49% to 32.6%. From 2009 to 2020, Fannie and Freddie’s annual share of the total MBS market averaged 70%. Including Ginnie Mae securities, those that are backed by FHA mortgages, the federal share of the MBS market averaged 92% per year. Moreover, from 2008 to 2020, the Federal Reserve went from holding zero MBS to more than $2 trillion (combined Fannie, Freddie, and Ginnie MBS).”

Some of current housing-related pieces of legislation were also spotlighted throughout the hearing, including:

• HR 802, the Respect State Housing Laws Act: This bill eliminates a provision in Section 4024 of the CARES Act (15 U.S.C. 9058) that requires a 30-day notice period before a landlord may begin eviction proceedings against a tenant in federally assisted or federally backed housing.
• HR 3327, the Manufactured Housing Affordability and Energy Efficiency Act: This bill would require the Secretary of the Department of Energy to receive approval from the Secretary of the Department of Housing and Urban Development before adopting energy efficiency standards for manufactured housing.
• HR 5198, the Expansion of Attainable Homeownership Through Manufactured Housing Act: This bill would amend the definition of “manufactured home” in the National Manufactured Housing Construction and Safety Standards Act of 1974 by striking a requirement that it be built on a permanent chassis.
• HR 3507, the Yes in My Backyard (YIMBY) Act: This bill requires certain Community Development Block Grant program recipients to submit to the Department of Housing and Urban Development information regarding their implementation of certain land-use policies, such as policies for expanding high-density single-family and multifamily zoning.

“Local zoning regulations are a key contributor to U.S. housing-affordability challenges,” said Dr. Hamilton in her testimony. “These regulations limit housing construction, particularly relatively low-cost housing construction. Examples from across the country show that where policymakers have successfully rolled back these regulations, housing construction has increased. Places that are more open to housing construction see improved affordability compared to their peers with higher barriers to new housing. The private market can improve access to housing and reduce house prices when and where it is allowed to.”

Click here for more information on the Housing and Insurance Subcommittee Hearing, “Housing Affordability: Governmental Barriers and Market-Based Solutions.”