This commentary originally appeared in the San Antonio Express-News on March 8, 2015.
The U.S. Census Bureau released new data recently revealing that the U.S. homeownership rate dropped to only 64.5 percent, a 20-year-low. The blame should be placed squarely on federal and local tampering, which have caused, not solved, our housing problems.
During the Great Depression, PresidentFranklin Roosevelt created both the Federal Housing Administration and the Federal National Mortgage Association (Fannie Mae) to assist homebuyers with purchasing homes.
Fannie Mae was intended to free up liquidity in the home mortgage market by buying mortgages, packaging them, and reselling them as securities. This was supposed to ensure that banks had more available loanable funds for new homebuyers.
Government’s role in the housing market expanded further over the years. Freddie Mac was created to again expand the mortgage market in 1970. Later, the federal government mandated banks to loan to low-income homebuyers with the Community Reinvestment Act of 1977.
These policies created excess liquidity in the mortgage market, allowing buyers who weren’t credit-worthy to obtain mortgages they couldn’t afford. However, there were other factors distorting the housing market.
Local communities nationwide enacted policies restricting the amount of developable land, often to keep open spaces or to micromanage land use. In some cases, no overarching anti-development policy existed, but a multitude of regulations effectively capped how many single-family homes could be built.
The net result of these policies was to reduce the supply of housing. This led to dramatic price increases, decreased housing affordability, and more government-backed risky loans that were more expensive than they should have been.
In the San Francisco Bay Area, the housing boom and bust particularly devastated homeowners. A June 2013 story in the San Jose Mercury-News detailed housing price declines of 150 percent that put mortgages underwater and ousted residents from their homes.
According to the story, at their peak in July 2007, median home prices in the Bay Area averaged $738,500. By March of 2009, those prices had plummeted to $295,000. The story also reported that prices were again rising, and cited Federal Reserve interest rate policies and a “low inventory of homes for sale” as among the reasons.
One would think that we would avoid some of the same policies that led to the last decade’s housing bust.
Instead, the federal government is back at it again, doing everything possible to prop up the housing market, and local governments are equally eager to resume their anti-development regulations.
Local governments cannot completely protect their residents from another housing bust. However, by promoting sound, commercially viable development through low regulations and less-restrictive land use policies, localities can best insulate themselves from a broader housing market decline.
This worked for Houston, the largest city without zoning in the nation, in 2007-2008. Houston largely didn’t experience the effects of the housing crisis of 2008 because its builders kept up with demand and land wasn’t restricted from development.
If more local governments adopted a hands-off approach, they might not be able to avoid the next housing bust, but they could lessen its effects. If the market is allowed to work, prices will be more stable and developers will be able to meet the housing needs of their community.
Local policymakers must be willing to consider the consequences of policies that limit development and increase housing prices. Which communities are doing that today? When the next housing bust occurs, we will have a pretty good idea.