Expanding Access to Homeownership as a Means of Fostering Residential Integration and Inclusion

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1 Expanding Access to Homeownership as a Means of Fostering Residential Integration and Inclusion Chris Herbert, Jon Spader and Shannon Rieger A Shared Future Symposium April 20, 2017

2 Why Homeownership Policies Need to Be Part of A Portfolio of Strategies Promoting Integration Large majorities of low-income and minority households continue to express a strong desire to own a home Homeownership supports residential stability that can benefit revitalizing areas and maintain integration in gentrifying ones Homeownership has the potential to enhance inclusion in communities where a majority of residents are owners 2

3 Expanding Access to Homeownership Would Also Expand Housing Options in Neighborhoods with Lower Poverty Rates and Higher White Shares Percent >=40% 30 40% 20-30% 15-20% 10-15% 5-10% <5% Census Tract Poverty Rate Homeownership Rate Source: JCHS tabulations of American Community Survey White Population Share 3

4 Caveats and Concerns about Homeownership as a Means of Promoting Racial Integration Some evidence that homeownership associated with lower segregation among Hispanics and Asians, but not among African-Americans Has the potential to reinforce existing segregated patterns African-American and Hispanic homebuyers disproportionately channeled into high cost and risky loans during the boom Has the potential to strip wealth and destabilize communities Promotion of homeownership has to be accompanied by robust pursuit of fair housing and fair lending protections 4

5 Framing the Options: Barriers to Homeownership and Extent of Current Policies Biggest financial hurdle is lack of savings for downpayment and closing costs, but current policies do little to address this Mortgage interest deduction is a huge federal expenditure with negligible impact on ownership CRA and GSE housing goals have broad reach to expand access to credit, although limited evidence of impact on homeownership Informational deficits limit ability to attain and succeed as homeowner, but limited evidence of efficacy of housing education and counseling (HEC) Existing policies generally do not focus on integrative effects 5

6 What Would it Take to Move the Needle on Homeownership as Pro-Integrative Strategy? Recommended approaches have to: Reach significant number of homebuyers to have meaningful impact Be fiscally feasible in current political climate Have some chance to attract bipartisan support 6

7 Reform the Mortgage Interest Deduction Proposal: Convert some portion of existing MID into first-time buyer tax credit on order of $5,000-$15,000 that phases out at higher incomes Rationale: Better targets marginal homebuyers, addresses principal financial constraint, provides stronger stimulus for housing market with less price distortion Pro-integrative effects: Tilts assistance toward low/moderate income households increasing relative purchasing power Transitioning out current MID will reduce price distortions at upper end of the market that likely exacerbates housing market segmentation 7

8 Reform Retirement Savings Tax Incentives Proposal: Convert existing deduction to a credit, create new accounts offered by banks to ease access, and allow tax-free withdrawals for home purchase and other qualified investments (CAP Universal Savers Credit) Rationale: Promotes savings for multiple purposes, homebuyers better prepared financially, stretches federal supports by matching savings Pro-integrative effects: Increases relative purchasing power of low/moderate income households 8

9 Expand Support for Housing Education and Counseling (HEC) Proposal: Charge small fee (1-3 basis points) on loan servicers to create steady HEC funding source for services, industry infrastructure, and pilot programs and tools Rationale: Shared benefits by borrowers and industry warrant financial support, cost small relative to benefits Pro-integrative effects: Potential for search tools and curriculum to increase integrative moves Increase in homeownership generally can also indirectly contribute to integration 9

10 Maintain Duty to Serve Provisions in the Mortgage Market and Strengthen the FHA Proposal: GSE reform should maintain duty to serve mandates as means of ensuring access to low-risk, affordable sources of credit for low/moderate income and minority borrowers Given its significant role in first-time homebuyer market, increasingly important to ensure FHA has adequate technical systems and staffing to safely fulfill its mission Rationale: While homeownership impacts are limited, ensuring access to safer, more affordable sources of credit needed for sustainable homeownership Pro-integrative effects: Potentially if duty to serve mandates are designed with goal of incentivizing integrative home buying 10

11 Expand the Stock of Shared Equity Housing Proposal: HUD should encourage use of HOME funding to produce shared equity homeowner units particularly in high cost areas FHA should ensure lending programs work with shared equity models Rationale: In high cost markets and neighborhoods, significant subsidies are needed to make homes affordable shared equity models recycle these subsidies and create permanent stock of affordable housing Pro-integrative effects: Shared equity models justify larger subsidies needed to expand supply of affordable housing in low poverty areas 11