Hillary Clinton’s Housing Plans: The Good, The Bad and the Missed Opportunities
This piece represents the opinion of Zillow Group Chief Analytics Officer and Chief Economist Dr. Stan Humphries.
Hillary Clinton
Hillary Clinton’s housing plans are detailed and balanced, even while being incremental and unsurprising. She’s a technocrat at heart and it comes through in spades in her plans in this area. While I might have loved hearing some more transformative ideas, I appreciate that she’s at least thought some about these issues and has put some building blocks in place that can be extended or elaborated. Here’s my detailed take on The Good, The Bad and The Missed Opportunities in this area.
The Good
Giving recipients of housing assistance more choice: Clinton proposes to expand the choices that recipients of housing vouchers have in deciding where to live, a reference (I think) to HUD’s small-area fair market rent program which computes the amount of Section 8 subsidy at the zip code versus overall metro level. This generally results in families being able to move to higher-opportunity areas for the same or lower amount of total program cost. This is a great idea. I love the fact that it’s tenant-based assistance (versus subsidizing supply which is less efficient in my opinion) and it is a practical way to address the growing body of research showing that the best way to help poor families is to allow them to escape concentrated areas of poverty.
Down payment assistance: Clinton proposes to match up to $10,000 in personal savings for the down payment for prospective buyers making less than the area median income. I like the idea because it addresses the biggest hurdle to homeownership—scraping together the down payment—while still requiring homeowners to put some skin in the game (and more equity does lead to fewer defaults). Experience with other forms of down payment assistance suggest that if Clinton wants to maximize the effectiveness of this program, she should offset smaller down payments from the borrower with another dimension of credit risk. For example, the program could require that borrower have less outstanding debt before the government is willing to help you out with your down payment.
Connect more Americans to opportunity through investments in public transit: Clinton’s plan includes about $275 billion of infrastructure spending, and I’m a huge believer that transportation policy IS housing policy. Once you’ve created an environment where abundant jobs are created, localities need to figure out either how to facilitate the construction of affordable housing near those jobs or how to transport the workers from where housing does exist to where the jobs are. We too often focus only on trying to create housing where the jobs are which often is in very expensive parts of the city. This results in only a small trickle of truly affordable housing units being produced. We love the idea of economically diverse neighborhoods with abundant affordable housing, but in practice, we can seldom have both. As a result, we’re condemning an ever-increasing segment of our population to either unaffordable housing or expensive commutes (in terms of both money and time) from more affordable areas.
The Bad
Maintain or expand the low income housing tax credit (LIHTC): At Zillow, we’ve been beating the drum for several years about how rental affordability is worsening, particularly for low-income Americans. Clearly we need to provide more affordable housing, but most empirical studies I’ve seen suggest that the LIHTC program generally pays developers for affordable housing that they were going to build anyway. Scrap this program and put the money into more housing vouchers so that we give people the means to afford market-based rents versus trying to create a precious few new, below-market rent housing units. However, policy shifts toward more vouchers should be coupled with improvements to the program’s portability, rent calculations and administrative friction—alongside improved protections against rental discrimination.
Credit counseling: In theory, I like the idea of credit counseling which promises to help consumers make wiser choices leading to fewer defaults, but the reality seems to be that the effectiveness of such programs is really driven by the characteristics of the people that seek such counseling, and less the counseling itself. In other words, those who seek counseling are often more capable of improving their finances already than those who don’t seek counseling. If there’s any effect, it seems less related to the content of the counseling and more to the fact that lenders are less likely to offer low quality mortgages when they know that an expert third party will help the consumer look over the details. I’d be more interested in lighter weight, more cost effective approaches here than in expensive, content-heavy counseling.
The Missed Opportunities
Reform of housing mortgage finance system: Back in 2008, the two mortgage giants Fannie Mae and Freddie Mac were made wards of the state after rising mortgage defaults brought them near to collapse. Since then, there have been no shortage of plans about how to re-fashion them into a functional mortgage finance system but, thus far, little progress has been made. As a result, US taxpayers are currently fully on the hook for mortgage losses that may be incurred in any future downturn in the housing market. This is not a vague hypothetical scenario since, even if you discount another widespread housing downturn as we saw between 2006 and 2011, there are more frequent regional downturns that create mortgage defaults and Fannie and Freddie have close to zero reserves to protect against such losses. Politically, there’s zero appetite to do anything about this in DC since a housing downturn is now out-of-sight, out-of-mind, but any responsible plan dealing with housing should identify the need to fix this situation.
Easing local barriers to affordable housing: Clinton proposes to give priority to funding from various government competitive grant programs to communities that “implement land use strategies that make it easier to build affordable rental housing near good jobs.” Sounds great but I’d love more details. I definitely believe that many local regulations, while created with good intentions, are now contributing significantly to our inability to create enough naturally affordable housing (forcing us to have to subsidize construction if we want it to be affordable). My dream here is that we package more of these programs together across the areas of housing, transportation and poverty, disburse more federal funds via competitive block grants to communities, and make the allocations depend on the extent to which the community plans incorporate features proven to be effective at lowering the sum of all households’ housing and transportation costs. In some metros, it might be easier to lower transportation costs than the cost of housing near jobs. In other communities, it might be easier to drive housing costs lower than transportation costs.
To read Zillow Group Chief Analytics Officer and Chief Economist Stan Humphries’ take on Donald Trump’s housing plans, please click here.