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Welcome to the Special POTUS Debate Edition of The Daily Dose of Real Estate!

As the 2024 Presidential Election heats up, the housing crisis remains a pivotal issue for millions of Americans. In this special edition, we delve into the housing policies proposed by the leading candidates, Donald Trump and Kamala Harris. Both candidates have laid out their plans to tackle the housing affordability crisis, but their approaches differ significantly.

Donald Trump aims to stimulate the housing market through economic measures and deregulation, believing that a robust economy will naturally lead to more housing development. His plan includes cutting energy costs, reducing interest rates, and opening up federal land for housing construction.

On the other hand, Kamala Harris offers a more targeted approach, focusing on direct support for homebuyers and renters. Her comprehensive plan includes down payment assistance, tax incentives for builders, a $40 billion innovation fund, and measures to control rent prices.

Summary of Candidates’ Housing Plans

Donald Trump’s Housing Plan

Donald Trump’s approach to addressing the housing crisis focuses on economic measures and deregulation:

• Economic Measures: Trump plans to cut energy costs and interest rates, believing that these steps will stimulate the economy and encourage home building. He stated, “When the economy gets better, it’s hard to get better when you have high energy prices” (Newsweek).
• Deregulation: Trump advocates for reducing regulations that he believes hinder housing development. This includes rolling back regulations to create a more business-friendly environment (Yahoo Finance).
• Federal Land Use: Trump has proposed opening up federal land for housing construction to increase the supply of affordable homes (CNN).

Kamala Harris’ Housing Plan

Kamala Harris’ plan is more comprehensive and includes several targeted measures to increase housing affordability and supply:

• Down Payment Assistance: Harris proposes providing up to $25,000 in down payment support for first-time homebuyers who have paid rent on time for two years. This aims to help working families and first-generation homebuyers (CNN).
• Tax Incentives for Builders: To spur the construction of new housing, Harris plans to introduce tax incentives for builders who construct starter homes and expand existing incentives for building affordable rental housing (CNN).
• Innovation Fund: Harris proposes a $40 billion innovation fund to support local governments, developers, and builders in constructing more affordable housing and exploring new methods of construction financing (CNN).
• Federal Land Use: Similar to Trump, Harris also supports repurposing federal land for affordable housing (CNN).
• Rent Control Measures: Harris aims to block landlords from using algorithm-driven price-setting tools and discourage wealthy investors from buying up properties and increasing rents (CNN).

Key Differences

• Focus on Economic Measures vs. Direct Housing Support: Trump’s plan is more focused on broader economic measures like cutting energy costs and deregulation, while Harris’ plan includes direct support for homebuyers and renters.
• Innovation and Local Government Support: Harris’ plan includes a significant innovation fund and support for local governments to address housing issues, which is not a feature of Trump’s plan.
• Regulation of Rent Prices: Harris includes measures to control rent prices and prevent price gouging by landlords, whereas Trump’s plan does not address rent control.

Both plans aim to address the housing crisis but take different approaches, reflecting their broader economic and political philosophies.

Successful Housing and Mortgage Programs in U.S. History

Federal Housing Administration (FHA) – 1934

• Policy: Established to improve housing standards, provide an adequate home financing system, and stabilize the mortgage market.
• Impact: Introduced long-term, fixed-rate mortgages, making homeownership more accessible. However, it enforced racial segregation through redlining (History.com).

G.I. Bill – 1944

• Policy: Provided returning World War II veterans with low-interest mortgages.
• Impact: Created a post-war middle class but often discriminated against Black veterans (ACE).

Fair Housing Act – 1968

• Policy: Aimed to eliminate discrimination in housing.
• Impact: Prohibited racial discrimination in the sale, rental, and financing of homes (History.com).

Section 8 Housing Choice Voucher Program – 1974

• Policy: Provides rental assistance to low-income families.
• Impact: Crucial in providing affordable housing options, though it faces challenges like long waitlists (ACE).

Low-Income Housing Tax Credit (LIHTC) – 1986

• Policy: Incentivizes private investment in affordable housing by providing tax credits to developers.
• Impact: Significant source of funding for affordable housing projects (ACE).

Ginnie Mae (Government National Mortgage Association)

• Policy: Supports homeownership by guaranteeing mortgage-backed securities (MBS) issued by approved lenders.
• Impact: Attracts global capital into the housing finance system (Ginnie Mae).

Fannie Mae’s America’s Community Fund

• Policy: Designed to spur neighborhood development by partnering with local organizations.
• Impact: Successful in creating affordable housing units and fostering community development (Fannie Mae).

Freddie Mac’s Develop the Developer Program

• Policy: Aims to inspire reinvestment and development in historically underserved communities.
• Impact: Graduated 72 developers, leading to 16 active development projects and 70 new housing units (Freddie Mac).

Hyped Housing Policies That Had Less Success

HOPE VI – 1992

• Policy: Aimed to revitalize the worst public housing projects into mixed-income developments.
• Reasons: Often displaced low-income residents without providing adequate replacement housing (ACE).

Home Affordable Modification Program (HAMP) – 2009

• Policy: Aimed to help homeowners avoid foreclosure by modifying their mortgages.
• Reasons: Criticized for being overly complex and not reaching as many homeowners as intended (Fannie Mae).

Qualified Mortgage Rule and Its Impact – Qualified Mortgage (QM) Rule – 2014

• Policy: Aimed to protect consumers by strengthening underwriting standards.
• Impact on Credit Markets: Analysts estimate that more than 3.3 million home purchases financed since 2014 fall into this market segment, potentially raising costs and reducing access to mortgages (NAR).
• Cost to Originate: Increased the cost to originate loans due to stringent documentation and verification requirements (NAR).

Impact of Conservatorship of Fannie Mae and Freddie Mac

Background

• Policy: Placed into conservatorship in 2008 to stabilize the housing market.
• Government Ownership: The federal government now owns or guarantees about 80% of new originations and mortgage servicing (Brookings).

Impact on Markets

• Stabilization: Achieved its key short-run goals of stabilizing mortgage markets and promoting financial stability (American Economic Association).
• Market Dominance: Fannie Mae and Freddie Mac now play a dominant role in the U.S. housing finance system (NAR).
• Challenges and Reforms: Calls for more permanent solutions to ensure long-term stability and address issues such as the racial homeownership gap (Brookings).

Analysis of Policies and Social-Economic Circumstances

Economic Crises and Government Intervention

• Many successful housing programs were born out of economic crises, such as the Great Depression and post-World War II housing shortages. Government intervention was crucial in stabilizing the housing market and providing pathways to homeownership.

Discriminatory Practices

• Despite their successes, many programs also perpetuated racial discrimination. Redlining and exclusionary practices in FHA and G.I. Bill programs denied minority communities the same opportunities for homeownership, contributing to long-term wealth disparities.

Shift Towards Inclusivity

• Later policies, such as the Fair Housing Act and Section 8 vouchers, aimed to address these inequities, promoting more inclusive housing practices and providing support for low-income families.

Private Sector Involvement

• Programs like the LIHTC leveraged private investment to address affordable housing needs, highlighting a shift towards public-private partnerships in housing policy.

Homeownership and Politics

• Background: Over the decades, various administrations have promoted homeownership as a means of achieving the “American Dream.” Policies aimed at increasing homeownership rates often included relaxed lending standards and government-backed loans.
• George W. Bush’s Initiative: In 2002, President George W. Bush set a goal to increase minority homeownership by 5.5 million by 2010. He stated, “We want everybody in America to own their own home. That’s what we want. This is an ownership society” (The White House Archives).
• Impact: The push for homeownership led to an increase in subprime lending, particularly targeting minority and low-income borrowers. When the housing bubble burst, these groups were disproportionately affected. According to the Urban Institute, Black and Hispanic homeowners were 70% more likely to face foreclosure than their white counterparts (Urban Institute).
• Foreclosures and Economic Downturn: The foreclosure crisis contributed to a broader financial meltdown, leading to the Great Recession. Millions of people lost their homes, jobs, and savings.

Snapshot of the Average American Home Buyer: 2006 vs. 2023

2006 Home Buyer Profile

• Income: The median household income for home buyers was approximately $71,000 (Clever Real Estate).
• Debt-to-Income Ratio (DTI): The average DTI was around 38% (CoreLogic).
• Loan-to-Value Ratio (LTV): The average LTV was about 87.4% (CoreLogic).
• FICO Score: The average FICO score was around 680 (Zillow).
• Median Home Sales Price: The median home sales price was approximately $221,900 (Federal Reserve).

2024 Home Buyer Profile

• Income: The median household income for home buyers has climbed to $107,000 (NAR).
• Debt-to-Income Ratio (DTI): The average DTI remains around 36% (CoreLogic).
• Loan-to-Value Ratio (LTV): The average LTV has dropped slightly to 85.5% (CoreLogic).
• FICO Score: The average FICO score has increased to 745 (CoreLogic).
• Median Home Sales Price: The median home sales price has surged to approximately $416,100 (Federal Reserve).

Comparison and Analysis

• Income: The significant increase in median household income from $71,000 in 2006 to $107,000 in 2024 reflects the rising cost of homeownership and the need for higher incomes to qualify for mortgages in today’s market.
• DTI: The DTI has remained relatively stable, indicating that lenders are maintaining similar standards for debt management.
• LTV: The slight decrease in LTV suggests that buyers today are putting down larger down payments compared to 2006, which could indicate a more cautious approach to borrowing.
• FICO Score: The increase in average FICO scores from 680 to 745 shows that today’s borrowers generally have better credit profiles, which may reduce the risk of defaults.
• Median Home Sales Price: The median home sales price has nearly doubled from $221,900 in 2006 to $416,100 in 2024. This increase has outpaced the rise in median household income, leading to a higher home price-to-income ratio. Historically, home prices were 2-3 times the median income, but now they are 5-6 times the median income.

Potential Risks of Well Intentioned Housing Plans

• Affordability: The significant increase in home prices relative to income levels poses affordability challenges, particularly for first-time and low-income buyers.
• Economic Uncertainty: Any economic downturn could disproportionately affect those who have stretched their finances to afford a home, similar to the 2008 financial crisis.
• Government Policies: The federal government was intended to help mortgage markets in a countercyclical way, providing stability during downturns. However, its current procyclical involvement may be contributing directly to the hyper-appreciation in home prices, making them unaffordable. Continued government intervention in the mortgage market, while stabilizing, also concentrates risk. If not managed carefully, this could lead to systemic issues similar to those seen in the past.

These comparisons highlight the importance of maintaining stringent lending standards and monitoring market conditions to prevent a repeat of the housing crisis that disproportionately affected the most vulnerable populations.

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