I would like to welcome Harsha Sekar as our resident blogger. Harsha will be preparing weekly posts to this blog. I am hoping that his insightful observations on current topics in housing will generate some new conversation.
Happy New Year and Welcome back to the official blog of St. Ambrose, Talk to St. Ambrose. Picking up where my colleague Will Flagle left off, I will serve as the new regular blogger for the Talk to St. Ambrose. At this point, we will provide a weekly post at the beginning of each working week, covering the most pressing and controversial national housing issues germane to our service at St. Ambrose.
Since our last update back in the summer, a number of major issues have emerged with sweeping implications for the housing policy nationally and by extension, St. Ambrose’s work here in Charm City. These issues include the Simpson-Bowles plan to strip away the mortgage interest tax deduction as a means to reduce the national debt, the predatory lending lawsuits against Wells Fargo and other banks initiated by a number of major U.S. cities (Baltimore included), and the missing documents and “robo-signer” scams that have inexplicably (or perhaps unsurprisingly) affected some of the largest banks in the nation. Furthermore, as state and local budgets have taken hits and entitlement programs have endured relentless beatings from lawmakers preoccupied with “spending cuts,” things can seem gloomy for folks like us, whose mission is to provide low to moderate income community members affordable housing and to curtail homelessness. Amid the changing political landscape, the piercing human costs of poor housing policies and homelessness remain, and we are geared up to fight harder in this challenging climate.
Among the maelstrom of ideas and blog posts, a few things have grabbed my attention of late, mainly because they overlook the position of low to moderate income homebuyers. In “Who Wants a 30 Year Mortgage,” Bethany McLean, in the New York Times Opinion section, reexamines the future of the hallowed 30-fixed rate mortgage, a hallmark of the American banking system and a culture that aggressively incentivizes homeownership. McLean points out that despite their prevalence, banks have long been in cautious in doling out these loans, since they 1) expand the risk of default over a 30 year timeframe and 2) ensure that the banks would shoulder the risk of an increase in the interest rate. Of course, these practices were kept afloat thanks to government guarantees. As an alternative to the 30-year fixed rate loan, McLean proposes the promulgation of 15-year loans that can be adjusted after a five-year period for changes in the interest rate. “Wouldn’t it be better for banks…to offer mortgage products that they actually want to keep on their books?” asks the author. While this kind of proposal might stymie the securitization of unreliable loans, it disregards the troubled impact that adjustable rate mortgages have had on low-income, predominantly ethnic minority communities. Indeed, variable interest rates attached to loans have given banks enormous leeway within which they have defrauded clients, aggressively recruiting people to buy homes with loans unconscionable in their design.
Moreover, since the onset of the financial crisis more than two years ago, it has been increasingly clear that the American housing market is closely tied to broader economic and societal trends. In the noted Times Economix blog, Harvard economics professor Edward Glaesser assesses the way in which policies that incentivize home-ownership has led to major population growth in some parts of the country, while regions that lack such aggressive policies have experienced hardly any increases. While this kind of analysis may be self-explanatory on its face, since Americans—who, it can fairly be inferred, value homeownership more than citizens of any other nation—are drawn to regions where they can gain a mortgage, and hence, own a home.
Glaesser goes on to point out what he terms as the “low growth states” (i.e. Vermont, Rhode Island, and New York), overwhelmingly voted for President Obama in the 2008 election, while the high-growth states, like Oklahoma and Utah, turned out for the GOP. He juxtaposes this evidence with the fact that wages are much higher in the Obama states than in the GOP ones.
And what exactly might this all mean? According to Glaeser, “people are not following the money.” Rather, “the ability to deliver abundant, affordable housing seems clearly to be a big element in explaining the high-growth states. Arizona and Nevada offer plenty of sunshine, right next door to California, at a fraction of the price. Despite a vast increase in population, these places remain cheap because they build so abundantly.”
He goes on:
My interpretation of Red State growth is that Republican states have grown more quickly because building is easier in those states, primarily because of housing regulations. Republican states are less prone to restrict construction than places like California and Massachusetts, and as a result, high-quality housing is much cheaper.
He proceeds to state that this is an “irony,” since, in Glaeser’s view, it is progressives states “that are believed to care about affordable housing.”
Funny—wasn’t it Bush II who used to speak at length about an “ownership society.” And by affordable housing, it seems like Glaeser means folks who are interested in purchasing single family homes in sunbelt suburbs. After all, these are the people who are privileged enough to be able to relocate simply (in Glaeser’s mind) so they can buy a cheap house (apparently because of better “regulations”), which, roughly speaking, translates to being able to get a favorable loan.
Of course, places like Nevada and Arizona haven’t exactly proven to be the best place to buy a home, at least in the eyes of the many people purportedly making the trek out West simply to do so. In contrast to Glaeser’s somewhat nebulous contention about regulation, it’s likely that we need more regulation, not less. As mentioned, some of the most disheartening news to surface after the financial crisis was the extent of predatory lending and the targeting of under-resourced potential home buyers with bad loans. A well regulated lending system coupled with humane and compassionate policies with an emphasis of alleviating poverty, not incentivizing buying simply for the sake of it, strikes one as a more attractive alternative.
We would love to hear your thoughts on these and other issues in the discussion section of the blog. Again, we are resuming normal posts at the beginning of each week—join us for more thoughts and comments from the folks at St. Ambrose.