10 steps to a better US housing policy
NOW that congressional action is underway on the Housing and Community Development Act of 1987, it is timely, as well as necessary, to assess housing conditions in America and to redesign our national housing policy to improve these conditions. Many parts of the nation suffer from a shortage of affordable housing, steadily rising rents, and the scourge of homelessness. After six years of federal neglect, Congress now has a fine opportunity to prove once again that wise government policy literally begins at home. Today, too many of our fellow citizens are discovering that the door to homeownership is locked, and that government has helped hide the key. While the Reagan administration has generally ignored the problem, the average working American is finding that housing prices are rising far faster than income. The costs of homeownership are now 300 percent higher than they were in the late 1970s. Consequently, homeownership in this country has actually declined since 1980, following 35 years' steady increase. Despite recent, and most likely temporary, drops in mortgage rates, many people are excluded from the housing market.
An important study conducted by the Joint Center for Housing Studies of the Massachusetts Institute of Technology and Harvard University related the decline in homeownership almost entirely to the inability of young families to enter the current housing market. The study indicated that since 1981, the percentage of homeowners in the 25 to 29 age group fell by almost 1 percent each year. Similarly, for those between 30 and 34, homeownership has dropped from 59.3 to 54.7 percent in the past five years.
Thus the ``average'' American family can no longer afford to buy the ``average'' American home. A family earning the nation's median family income of about $28,000 falls short of the income needed to carry the mortgage on today's median-price home.
The percentage of annual income required of first-time home buyers for down payment has risen from about 33 percent in 1978 to 50 percent in 1985. Likewise, the annual income percentage for mortgage payments went from 21 percent in 1973 to about 44 percent in 1986. Little wonder that mortgage default rates are at their highest levels in a decade and that the foreclosure rate has nearly doubled since 1980.
Clearly, we need a bold yet prudent national housing program to facilitate homeownership, increase the amount of affordable rental housing, and rid the country of homelessness. I suggest a 10-point plan to accomplish these goals, a practical and humane program already proven in many of our states.
We could establish a national lease-purchase homeownership program, perhaps one modeled after our successful program in New Jersey. Here, our state housing agency makes attractive loans to builders and nonprofits. Lease-purchasing families make a monthly payment, part of which goes toward a down payment that is paid off within 24 to 36 months.
A second program which could ease down payment burdens is a national housing investment corporation, which could administer a shared equity or co-investment mortgage fund. This corporation would have an equity interest in a diversified, high-quality portfolio of appreciating housing assets. It would make the government a housing partner, investing in families and housing stock.
A third way to help young families accrue a down payment would be to create a national employee homeownership program: Employers would provide down payment assistance to employees in a way that is tax-advantageous to both.
Individual housing accounts, patterned after individual retirement accounts, would also help first-time home buyers save for a down payment.
In addition, we should return to the states the full capacity to issue necessary levels of tax-free mortgage revenue bonds. The recently enacted tax reform act severely limits this capacity, but it should be restored.
To build and rehabilitate affordable rental units, four major national programs are needed.
We need a program to stimulate the construction of hundreds of thousands of affordable rental units every year. An urban and balanced housing finance act, similar to the program I helped establish in New Jersey, can meet the need. Our program provides an upfront, one-time subsidy which is sufficient incentive to the shelter industries and to nonprofits that units are being produced. Municipalities compete for the funds and are required to make cost-saving contributions like donations of land or tax abatements. A modest tax on luxury housing and commercial realty provides a self-replenishing source of revenue.
We need an old buildings, new communities law to co-venture the production of affordable apartments through rehabilitating empty buildings. This bill would differ from existing programs by emphasizing a partnership with nonprofit community and religious groups and labor unions, concentrating on empty and abandoned buildings to eliminate displacement effects, and encouraging mixed use projects to include neighborhood stores and service businesses.
We must restore favorable tax treatment to builders who will construct affordable apartments and to state governments that wish to use tax-free bonds for low-income housing.
Furthermore, our national government should recommit itself to a decent, expansive public housing policy. We should fully fund the adequate upkeep of public housing and constrain efforts at privatization so that public housing occupants are not forced to buy unsound apartments at unfair prices. And we should fund the construction and maintenance of new public housing, at least when and where local communities are ready to welcome and support them.
We simply must act decisively to pass a homeless persons survival act. Most homelessness can be prevented in a cost-effective way, and we have a moral obligation to find shelter for those who are already homeless. We need to preserve, not separate, families and help promote dignity and independence through jobs training, counseling, and community support.
This plan is neither perfect nor complete, but it is a basis for discussion and action. After years of neglect, it is time to deal with the housing crisis before it cripples our spirit and corrupts our dreams.
David Schwartz is a professor of political science at Rutgers University, a member of the New Jersey legislature, and vice-chairman of the National Conference of State Legislatures' Housing Task Force.