What Part Does the Government Play in Housing?
Hello, people. Welcome to the REH Real Estate Youtube channel. The government has many roles in the housing market. It taxes, regulates, helps out with loans and houses, and so on.
They primarily release funding through federal tax policies such as the home mortgage interest deduction, direct subsidies like assistance to low-income renters and indirect subsidies like tax credits (LIHTC) for affordable housing. Through their other funding sources – the Community Development Block Grant (CDBG) and HOME – the federal government releases funds for states and localities as well and economic flexibility to address their area’s affordable housing needs. If you want more real estate content, Real Estate Heaven fan, subscribe to the REH Real Estate Youtube channel and hit the notification bell.
State governments play a key role in providing housing for citizens. Their programs lower the cost of homeownership, as well as being able to allocate CDBG, HOME and other state-funded resources to early efforts in areas throughout the state. Low Income Housing Tax Credits are another major source of funding, which states distribute at their will. Some states promote housing by creating state-run housing trust funds or other mechanisms.
Certain states can incentivize localities to enact policies that will accommodate the growth of affordable homes. States, as facilitators, are also in charge of encouraging municipalities with the proper legislation and education.
While local governments often work behind the scenes, this is where the rubber meets the road. From enforcing zoning regulations to processing requests for waivers to issuing building permits and conducting housing code inspections, localities directly shape the homes that get built in their community. Some localities also donate publicly owned land or property that has gone into tax foreclosure and contribute funds from their community to build or rehabilitate homes.
Imagine that you live in a region where affordable housing is scarce. By removing bureaucratic barriers to development, increasing the allowable density of units, and requiring new developments to have some affordable housing, governments can expand the supply of affordable homes with little public expense.
As housing demolition and bank foreclosures threaten to empty neighborhoods, developers are both the cause of the problem and susceptible to its effects. Consumer banks and real estate companies can be revitalized by collaborating with other relevant parties, such as mayors, workers’ associations, and affordable housing groups, to tackle this challenge.
With increased public awareness of the need for workforce housing, business leaders can help by calling attention to the problem and lobbying policymakers to reform zoning regulations or other practices that limit affordable homes. By advocating for local housing policies and actively supporting efforts to increase housing opportunities, businesses can help both themselves and their communities. They also can advocate for state grants and tax credits that enable employers with an Employer Assisted Housing program.
If federal programs and pro-growth policies were implemented, private sector developers would be incentivized to increase housing production and prices would rise more slowly. In addition, by maintaining affordable housing supplies, communities can serve both economic development as well as affordability, while striving for a healthy economy.
With the dramatic shifts in the housing market, private financial institutions are critical partners. Partners such as lenders and servicers can help determine affordability for homeowners by specializing in mortgage modification or even refinancing existing mortgage loans with new terms that could reduce monthly payments or tax-advantaged second mortgages. For example, banks can explore a low-interest loan or a silent second mortgage which splits a mortgage into two mortgages: a fixed rate loan and a more affordable mortgage that is not due until the home is resold.
Lending specialists or housing counselors can help customers get a loan modification or in refinancing their mortgage through the federal program Making Homes Affordable. By getting these parties involved, lenders and servicers are eligible for a financial incentive for helping struggling homeowners.
Nonprofit organizations take on many different roles in the housing market. Some focus primarily on neighborhood improvement others serve vulnerable populations, while some are focused on land development and real estate mortgage banking to help expand affordable housing options, while also providing other supportive services. Like all non-profits, they have the flexibility to actively do as they please and hope they can meet the needs of the community which their service is designed to benefit. They often provide high-quality services so that the homes remain affordable for future generations.
Affordable housing has been a problem in Eagle County since the chairlifts began amidst this change dates back to the 1960s.
Tourism creates jobs and economic growth for the local workforce, but there is not enough affordable housing for locals to live in. If local governments want to retain these communities, they need to take action that supports businesses.
With the cost of housing, someone might be priced out of their neighborhood. Housing is important because it either helps or hinders the ability to attract and retain a workforce.
Demand is the driving force behind the surge in housing prices in our mountain communities. As this demand increases, more people are lured out of their urban homes and into the mountains to find affordable real estate where they can build a future independence on. However, supply restricted by zoning creates an even higher demand for housing, which then raises its price.
There was an article written by Paul Kupiec and Edward Pinto in the Wall Street Journal which describes the issue. They describe what municipal governments should do to make housing affordable for everyone. They recommend adopting policies that reduce development costs, expedite approval processes, and lower impact fees, as well as reducing unnecessary regulations. Only by implementing cost-reducing measures will municipal governments have the opportunity to produce affordable housing for everyone.
This is good advice for ongoing conversations about affordable housing and future development proposals. This can also help the government be engaged and involved in addressing the issue.
It is common for public officials to grapple with how best to guide the creation of transportation systems, water supply, open space, and housing. This is true for state and local elected officials in Colorado, particularly as they look at non-traditional models such as barriers to entry and disruption.
In a robust economy, wages do not always keep up with the cost of housing. Sometimes public policy can help development costs and housing accessibility but has hindered growth in affordability by prohibiting them from being built or restricting the number of workers that could afford them. This may cause a community to be unable to attract enough workers who are needed to maintain their current functioning.
Some people argue that the building of more housing will bring with it increased school expenses, traffic congestion, noise pollution, and crime. They are also concerned that new development will cause property values to decline. It has been proven that these concerns were unrealized and overstated.
Currently, housing is given by local planning procedures and policies that can potentially hinder the production of affordable housing. The supply of affordable housing depends on its local regulation as well. By breaking down these regulations and changing them, jurisdictions have an opportunity to positively impact the production of affordable housing.
But, limiting or removing regulatory barriers would allow the government to avoid time-consuming and costly approval processes. The appropriate response for local government is to make it easier for them to increase production.
This week, Byron Lazine and Nicole White tackle NAR chief economist Lawrence Yun’s latest testimony to Congress. They also discuss 2022’s biggest residential real estate transactions (to date).
Byron Lazine and Nicole White are two agents in Connecticut who provide their musings on the week’s news every Friday in “The Real Word,” which is a weekly video column on Inman.
Lazine and White discussed a recent testimony by Lawrence Yun, chief economist of the National Association of Realtors, on housing inventory shortages, which have caused a significant number of buyers to go towards investors. Like Yun, Lazine does not see a drop in prices unless there is more supply.
Rising interest rates are also causing a decrease in the number of buyers, both first-time homebuyers as well as sellers who would rather hold off on selling and buying.
Next, Lazine and White discussed a recent article by Lillian Dickerson on the most expensive real estate deals of 2022 thus far. Topping the list was 220 Central Park South, which sold for $190 million in January. The buyer had not been identified yet and the sale was completed off-market by Deborah Kern from The Corcoran Group.
A large percentage of Americans are now spending more on housing than they used to 20 years ago, due in part to recent regulations and a decline in the financial support available. These factors leave people with less money to cover their needs such as food and healthcare issues while they’re commuting.
The minimum wage only provides a paycheck that is barely enough to cover a modest apartment. Because of the high cost of rental apartments, subsidies from the government are critical for low-income families.
In 2017, almost half of US households that rent spent over 30 percent of their income on rent.
Median home prices are over for communities in coastal California, much of the Northeast, and South Florida.
Affordable housing is shaping up to be one of the kitchen-table issues that matter in the 2020 presidential campaigns. Several Democratic candidates have proposed plans to address the problem, and this week the White House released an Executive Order to delve into one cause of rising housing costs.
Housing affordability is commonly measured as the share of an individual’s monthly income spent on rent or mortgage payments. Based on a set by the U.S. Department of Housing and Urban Development (HUD), anyone spending more than 30% of his or her household income is considered “cost-burdened,” while someone living in a dwelling that costs more than 50% of its total value would be considered “severely burdened.” This often leaves families with less money to cover food, healthcare, and transportation.
Relative to the cost of dwellings, a housing affordability crisis is affecting a large number of households. In 2017, nearly half of residential renters spent more than 30% of their income on dwelling costs, which was up from 40% in 2001. Even among those who classify as middle-income, housing expenses are consuming more of these households’ income than in the past twenty years.
Housing affordability varies widely across the United States. The map below shows another measure of affordability for metropolitan areas: the median home price divided by the median household income. For the entire country, median home prices are roughly three times median income. But in coastal California, much of the Northeast, and South Florida, median prices are more than six times median incomes. In the Midwest and many smaller metros in the Heartland, prices are less than twice median incomes.
The least affordable housing is found in coastal metro areas, while the most affordable is located in the Great Lakes region.
The United States has two separate affordable housing problems. The poorest 20 percent of families cannot afford minimum quality housing due to their low incomes. They need some kind of low-income subsidy from the government in order to afford standard apartments. Additionally, the number of families eligible for federal assistance has decreased while regulations have increased housing prices in many large metro areas.
It is the co-location of many policies, like zoning laws and development restrictions, that increases the cost of housing. With city-wide limitations on apartments, most communities in America are requiring developers to invest in costly land rather than build affordable units that use less space per person. Furthermore, an inefficient process and time-intensive developments have also increased the price tag.
While federal policies influence the cost of construction, several channels exist that impact the price. Tariffs and trade policy affect materials such as steel and lumber; immigration policy affects workers; guidelines set by lenders such as Fannie Mae or Freddie Mac also dictate the expenses. Monetary policy set by the Federal Reserve, as well as lending guidelines set by public or quasi-public agencies like FHA, dictate mortgage costs.
One of the most convenient ways for the federal government to alleviate housing cost burdens on low-income households is by giving them subsidies, which are not an entitlement. Currently, around one in five eligible renter households receives federal assistance because of a boost in income levels. Policies such as the earned income tax credit, the minimum wage, or a proposed universal basic income can also help poor families pay for housing.
2020 presidential candidates have proposed 3 common housing reform policies: removing the burden of housing cost, addressing local regulations, and reducing the impact of historical racial laws.
With the federal tax credit for renters, some new candidates want to set up a system that can flow from affordable housing companies to all American households. These companies would refund some of your income and could be justified through places like California with strict building restrictions, where it would be more likely to push rental costs up. With a healthy number of these credits—or just extending it further up the income scale—the impact on housing prices may increase.
With this extended proposal, federal incentives would tie local zoning reform to DOT funding and provide large incentive packages to selective suburbs. For the plan to be successful, the level of financial incentive must be substantial because often these towns are wealthy and receive very little HUD funding in comparison.
A number of candidates are explicitly framing their housing plans as responses to racially discriminatory policies of the past. Specifically, black households today have lower homeownership rates and overall wealth than white households due to historic redlining. One proposed solution is a new “baby bonds” program, which would be funded by the federal government on a sliding scale based on income. Other proposals include downpayment subsidies for people living in historically redlined communities and more rigorous enforcement of federal fair housing laws, both of which would combat racial disparity without explicitly using race. However, neither family income nor geography is perfectly correlated with race.
Housing support is an important part of the federal budget. In 2019, the last year before the pandemic, the federal government spent $139 billion on housing programs, or 3 percent of all federal spending that year.
In response to the pandemic, in 2020, the Coronavirus, Aid, Relief and Economic Security Act raised funding for existing housing programs by $12 billion.
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