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10 steps to a better US housing policy

By David Schwartz / April 23, 1987

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.

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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.