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Housing Affordability Worsens With High Building Costs
Rising interest rates and high land and production costs will continue to push the cost of housing beyond the means of many American families, and a disproportionate share of the blame for today’s sky-high prices goes to misguided local government policies, according to participants in a June 8 symposium on barriers to homeownership.
The one-day meeting in Washington, D.C. was sponsored by Wells Fargo Home Mortgage and attended by some 300 representatives from home building, home finance, Realtors®, housing affordability advocacy groups and government, including HUD Secretary Alphonso Jackson.
The symposium addressed the current economic and demographic conditions that are constraining homeownership, as well as the need to educate consumers and to provide financial services that meet the needs of low- and moderate-income families.
“The ’90s were a pretty dog-gone good decade for housing. But we expect this decade and the next to be even better,” said David Crowe, an NAHB senior staff vice president. “We expect interest rates to climb a little bit more this year, but then to level off. And we’re expecting overall economic growth to be positive but not outstanding.”
Housing-Price Appreciation Slowing Down
 The robust housing market of recent years has boosted housing prices significantly, Crowe said. “We don’t expect to see this rise in prices to continue unabated. We’re not talking about a decline in housing prices, nationally. But we do expect to see a significant slowing in the rate of housing-price appreciation.
“New home prices are a very large determinant of all housing prices. Producing more housing will continue to be expensive, and that will affect all housing prices,” Crowe said.
In addition to higher interest rates, several components of housing production are driving up the cost of housing, Crowe said, and a surprising number of them are coming from the government:
- Restrictive zoning. Large lot requirements are a guarantee of higher land costs and fewer homes in a given development. “That doesn’t make sense if you’re trying to promote affordability,” he said.
- Inclusionary zoning. This policy is the government’s way of assigning full responsibility for housing affordability to the housing industry and also drives up the cost of housing for those families buying unsubsidized units in a development.
- Impact fees and exactions. Gold-plated infrastructure requirements push up the cost of housing and force new home buyers to pay for public goods that benefit the entire community.
- Excessive open space mandates. Open space is great, Crowe said, but it needs to be part of a comprehensive plan and balanced against the need for housing in the community.
Lawrence Yun, a senior economist with the National Association of Realtors® (NAR), noted that potential home buyers face significant regional differences in affordability that affect their chances of purchasing a home.
The Going Gets Tougher in High-Priced Markets
“If you are a home owner in a high-cost coastal region, then you are lucky to be enjoying significant increases in home equity,” Yun said. “If you live in one of the expensive coastal markets and you are not a home owner, it will be difficult to become a home owner.”
Restrictive growth policies are a big contributor to high housing prices in high-cost areas, Yun said. “Home builders will tell you it is very difficult to build a home in San Francisco. If you aren’t building homes in San Francisco, then home prices there can only go up.”
Frances Martinez Myers, chairman of the National Association of Hispanic Real Estate Professionals (NAHREP), said the Latino market is large and will get much larger, noting that current projections anticipate that by the year 2050, 25% of the American population will be Hispanic.
Latino Families Can Be Customers for Life
American companies should take note of various cultural factors in the way they relate to the Hispanic market, she said. “A Latino family is the perfect customer for life. “If you treat them well, they’ll keep coming back, and they’ll bring family and friends.”
Martinez Myers listed several factors that prevent some Hispanic households from buying a home:
- Lack of knowledge about the home buying process
- Lack of savings for a downpayment
- The difficulty of finding a trustworthy advisor
- Credit history. Hispanic families are much more likely to be “unbanked,” and new immigrants find it difficult to grasp the concept that you need to have debt and establish a credit record to get debt.
On the positive side of what’s happening in the country today, HUD Secretary Alphonso Jackson told the symposium that housing “can make a difference in the quality of life of people in this country” and the federal government is moving decisively to help families realize their aspiration of becoming home owners.
“All you have to do is believe,” Jackson said. “It might be madness to live with a dream, but it is insanity to live without one.”
“This is a good time to be a home owner in this country,” Jackson added. “Many people have seen the value of their homes rise. They have tapped their home equity to improve their homes, or to send a child to college.”
Jackson noted the success of the Bush Administration initiative to increase minority homeownership rates. “Four years ago, President Bush challenged us to create 5.5 million home owners by 2010. We have created 2.6 million new minority home owners in this country.
“Today, for the first time in our nation’s history, the homeownership rate for minority households is above 50%,” he said.
Bringing the FHA Into the Modern Age
 “President Bush and I know that the role of government is not to create wealth and opportunity. It is to create the conditions in which the private sector can do it,” Jackson said.
Jackson made clear that one of his highest priorities is working with Congress on legislation to modernize the Federal Housing Administration. “There is a clear reason for updating the FHA — because we don’t want people priced out of homeownership and we don’t want people forced into the sub-prime market,” he said.
The proposed reforms include allowing lower downpayments then are allowed under the current FHA program, and raising the FHA mortgage limit to address those places, like California, where home prices have gotten so high that almost no home mortgages are eligible under the FHA program.
Jackson concluded with an appeal for compassion: “We come into this world with nothing. We go out of this world with nothing. All that matters is how we treat people while we are here.”
“Communities where homeownership is high are more vital,” said Cara Heiden, a division president for national consumer and institutional lending for Wells Fargo Home Mortgage. “Families take care of their asset. They make sacrifices to preserve it,” she said.
For more information, e-mail Blake Smith at NAHB, or call him at 800-368-5242 x8583.
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