Housing: New Directions for National Policy

More than five years after the collapse of the housing market, it’s all too apparent that current housing policy, and the institutions that support it, are outdated and inadequate.

That’s why a Bipartisan Policy Center (BPC) Housing Commission of former Cabinet secretaries, former Senators and other leading housing and economic experts unveiled a new vision for housing policy that aims to further our nation’s economic recovery and improve the lives of millions of Americans. The recommendations propose scaling back the government role in the nation’s housing finance system and reforming housing assistance programs to better meet the needs of America’s most vulnerable households.

“Profound demographic changes are transforming the country and our housing needs. The aging of the Baby Boomers, the formation of new households by millions of young Echo Boomers striking out on their own, and the increasing diversity of the American population will present new challenges and opportunities for housing providers and policy makers.”

The Commission’s report, entitled Housing America’s Future: New Directions for National Policy, proposes a new housing finance system that calls for a far greater role for the private sector, a continued but limited role for the federal government, the elimination of Fannie Mae and Freddie Mac, and reform of the Federal Housing Administration to improve efficiency and avoid crowd-out of private capital.

Through these reforms, the plan would address the broken mortgage finance system while creating a stable and strong housing market that provides greater taxpayer protection and supports a more vibrant economy.

Housing Commission Principles

• A healthy, stable housing market is essential for a strong economy and a competitive America.
• The nation’s housing finance system should promote the uninterrupted availability of affordable housing credit and investment capital while protecting American taxpayers.
• The United States should reaffirm a commitment to providing a decent home and a suitable living environment for every American family.
• The primary focus of federal housing policy should be to help those most in need.
• Federal policy should strike an appropriate balance between homeownership and rental subsidies.

Key Recommendation Areas

• Reforming Our Nation’s Housing Finance System

• The Continuing Value of Homeownership
• Affordable Rental Housing

• The Importance of Rural Housing

• Aging in Place: A New Frontier in Housing

From the Executive Summary:

Our nation’s numerous and urgent housing challenges underscore the need for a review of federal housing policy. Since the collapse of the housing market in 2007, the federal government has stepped in to support the vast majority of all mortgage financing, both for homeownership and rental housing. At the same time, rental demand is increasing in many regions throughout the United States, and the number of renters spending more than they can afford on housing is unacceptably high and growing. These  developments are taking place against a backdrop of profound demographic changes that are transforming the country and our housing needs. These changes include the aging of the Baby Boomers, the formation of new households by members of the “Echo Boom” generation (those born between 1981 and 1995), and the growing diversity of the American population.

In many respects, our housing system is outdated and not equipped to keep pace with today’s demands and the challenges of the imminent future. The Bipartisan Policy Center (BPC) launched the Housing Commission in October 2011 to develop a new vision for federal housing policy that provides a path forward during this period of great change. This report, the centerpiece of an ongoing effort by the Housing Commission to examine key issues that together form the basic elements of a resilient housing system, proposes:

• A responsible, sustainable approach to homeownership that will help ensure that all creditworthy households have access to homeownership and its considerable benefits.
• A reformed system of housing finance in which the private sector plays a far more prominent role in bearing credit risk while promoting a greater diversity of funding sources for mortgage financing.
• A more targeted approach to providing rental assistance that directs scarce resources to the lowest-income renters while insisting on a high level of performance by housing providers.
• A more comprehensive focus on meeting the housing needs of our nation’s seniors that responds to their desire to age in place and recognizes the importance of integrating housing with health care and other services.

In preparing the recommendations that follow, an overarching goal of the commission was to ensure that the nation’s housing system enables individuals and families to exercise choice in their living situations, as their needs and preferences change over time. While today’s challenges are great, the opportunity to create a new system that expands the range of housing options for individuals and families is even greater.

Reforming Our Nation’s Housing Finance System

Meeting our nation’s diverse housing needs requires a strong and stable system of housing finance.

• A successful housing finance system should maximize the range of ownership and rental housing choices available at all stages of our lives.
• The private sector must play a far greater role in bearing credit risk.
• While private capital must play a greater role in the housing finance system, continued government involvement is essential to ensuring that mortgages remain available and affordable to qualified homebuyers.
• As part of this rebalancing, the commission proposes the winding down and ultimate elimination of Fannie Mae and Freddie Mac after a multiyear transition period.
• Through the gradual reduction in loan limits to pre-crisis levels, the commission also supports a more targeted FHA that returns to its traditional mission of primarily serving first time homebuyers.
• The commission proposes to replace the GSEs with an independent, wholly owned government corporation — the “Public Guarantor” — that would provide a limited catastrophic government guarantee for both the single-family and rental markets.
• In the new system, the limited catastrophic guarantee of the Public Guarantor would only be triggered after all private capital ahead of it has been exhausted.
• The Public Guarantor will have significant standard-setting and counter-party oversight responsibilities.
• The commission has identified a number of regulatory obstacles that are restricting mortgage credit and inhibiting the housing market’s recovery.
• To overcome these obstacles, the commission recommends that the President of the United States direct the Department of the Treasury, in coordination with the various federal banking agencies, to assess the impact of current and pending regulatory requirements on the affordability and accessibility of mortgage credit.

The Continuing Value of Homeownership

• Homeownership will continue to be the preferred housing choice of a majority of households.
• Despite the collapse of the housing market, the commission strongly believes that, when responsibly undertaken, homeownership can produce powerful economic, social, and civic benefits that serve the individual homeowner, the larger community, and the nation.
• Housing counseling can improve prospective borrowers’ access to affordable, prudent mortgage loans, especially for families who otherwise might not qualify or who may experience other barriers to conventional lending.

Affordable Rental Housing

Growing pressure for rental housing may push rents further out of reach for the low-income households that are least able to afford it.

• The nation’s 41 million renter households account for 35 percent of the U.S. population.
• Nationally, a majority of extremely low-income renter households spend more than half of their incomes on housing.
• There are far more extremely low-income renters than available units they can afford. Federal housing assistance meets only a fraction of the need.

• The commission recommends that our nation transition to a system in which our most vulnerable households, those with extremely low incomes (at or below 30 percent of area median income) are assured access to housing assistance if they need it.

• The commission recommends increasing the supply of suitable, affordable, and decent homes to help meet both current and projected demand.

• The commission recommends federal funding to minimize harmful housing instability by providing short-term emergency assistance for low-income renters (those with incomes between 30 and 80 percent of area median income) who suffer temporary setbacks.

• These recommendations, if fully implemented, would help to meet the needs of an additional five million vulnerable renter households and contribute to the elimination of homelessness—through production, preservation, and rental assistance.

• The commission recommends a new performance-based system for delivering federal rental assistance that focuses on outcomes for participating households, while offering high-performing providers greater flexibility to depart from program rules.

• In light of today’s difficult fiscal environment, the commission recognizes that a transition period will be necessary before these recommendations can be fully implemented.

• The commission supports the continuation of tax incentives for homeownership, but as part of the ongoing debate over tax reform and budget priorities, the commission also recommends consideration of modifications to these incentives to allow for increased support for affordable rental housing.

The Importance of Rural Housing

• The U.S. Department of Agriculture (USDA) bears primary responsibility for administering housing assistance in the nation’s rural areas that, under the current definition used by USDA, are home to one-third of the U.S. population.
• The commission supports current approaches to the administration of housing support in rural areas.
• The commission also recommends enhancing the capacity of USDA providers to serve more households.

Aging in Place: A New Frontier in Housing

We are still largely unprepared to meet the needs of the overwhelming numbers of seniors who wish to “age in place” in their own homes and communities.

• The aging of the population will necessitate major changes in the way we operate as a nation, including in the housing sector.
• The commission recommends better coordination of federal programs that deliver housing and health care services to seniors.
• The commission supports better integration of aging-in-place priorities into existing federal programs and urges a more coordinated federal approach to meeting the housing needs of the growing senior population.

Related Articles

• Independent for Life: Homes and Neighborhoods for an Aging America — What will it take for Americans to age successfully in place? This question is the subject of this book, which was authored by more than a dozen leading aging and housing experts and co-edited by Henry Cisneros, a four-term mayor of San Antonio, former secretary of the U.S. Department of Housing and Urban Development, and a member of the Bipartisan Housing Commission that crafted these recommendations.

• U.S. Should Make ‘Life-Long Homes’ A Priority — This interview with Henry Cisneros promotes the book, “Independent for Life: Homes and Neighborhoods for an Aging America.”