Affordable Housing Crisis Demands Renewed Focus on Housing Supply
Supply and demand regulate nearly every aspect of our economic lives.
The supply of barbers goes down, so they raise their prices until more barbers set up shop. High demand for detective-based dramas on streaming services leads production studios to crank out ever more. Too many fast-food restaurants pressures national chains to lower the price of hamburgers. The market, economics tells us, tries to self-correct for an imbalance in supply and demand.
Sadly, as many people hunting for a reasonably priced home or apartment can attest, housing markets don't always behave this way. In communities across the United States – from our fastest-growing cities to rural towns – imbalances between supply and demand have persisted. Rather than self-correcting, in many places they have worsened over the last decade. In most cases, these imbalances have been exacerbated by a complex set of policies, incentives, and disincentives that have sharply limited the available supply of moderately priced homes and apartments.
Fannie Mae's analysis of housing data indicates that the inventory of existing single-family homes for sale has declined over 30 percent nationwide since 2011, while the nominal price of homes sold has increased by 57 percent. Inadequate single-family construction in the current expansion relative to job growth has led to an insufficient supply of both new and existing homes for sale. First-time homebuyers, especially Baby Boomers, are staying in their homes longer, limiting the supply of starter homes for new first-time homebuyers as well as the supply of "next homes" for growing families looking to buy up. That is a key reason why the supply-price imbalance for moderately priced homes – those most attractive to new households or first-time homebuyers – has been even worse than higher-priced homes.
Apartment seekers have it bad, as well. Since 2010, the supply of apartments affordable to renters with very low to moderate incomes has remained static at best, at a time when demand for these units has been brisk. Yet, most new apartments are targeted at higher-income renters. The result: Nationally, rents have grown faster than wages in most major U.S. metropolitan markets.
As a major participant in the mortgage credit markets, Fannie Mae's focus has traditionally been on the demand side of the housing equation. Meaning, our primary job is to ensure that mortgage lenders have access to capital to make sustainable mortgages to support the demand for housing among homebuyers and renters.
Fannie Mae has been a force for affordable housing for decades. We are among the country's largest providers of financing for rental housing that is affordable to low- and moderate-income Americans. The 30-year fixed-rate mortgage, a mainstay of Fannie Mae's business, has been the primary tool for financing homes for new homebuyers and moderate-income families for generations.
Yet for all that, Fannie Mae and the entire mortgage market face a serious dilemma. As housing becomes ever more expensive, our industry's ability to make sustainable mortgages is becoming ever more difficult. The supply of mortgages may be adequate, but clearly the supply of homes is not.
Fannie Mae's evolving affordable housing strategy recognizes this hard reality.
To be sure, our primary focus on access to credit for all qualified borrowers is not changing. We are working to make the mortgage process easier, faster, less expensive, and more certain for lenders who finance both single-family and multifamily housing.
But making a mortgage more affordable will achieve little unless the homes available to buy or rent are affordable as well.
As an organization, we want to do more to enable and support the creation of housing most in demand: affordable homes in areas of economic opportunity, where good schools, quality health care, and reliable transportation to and from work is within reach.
What Fannie Mae Is Doing Now
This effort starts with Fannie Mae's own business. We are evaluating our practices, products, and policies to find ways that Fannie Mae can enable the creation of more affordable housing.
For instance, to help alleviate the lack of quality affordable housing in many communities, Fannie Mae is committed to the long-term development of a viable secondary market for manufactured housing loans, so that consumers who borrow to buy a quality manufactured home are afforded the same benefits as borrowers in the conventional mortgage market.
In the apartment market, our Green Financing programs channel capital into environmentally friendly property improvements that can reduce operating and utility costs over the long term, thus helping to sustain and preserve affordable housing. And our affordable multifamily financing and LIHTC equity businesses continue to grow, providing a much-needed source of capital to preserve, create, and improve our affordable rental housing stock.
Fannie Mae this year is also devoting more talent and resources to studying the economic and other forces that inhibit the creation of housing supply not just for low-income, but for moderate-income households as well. It's a complex issue, and different from market to market. Any business strategy that Fannie Mae undertakes to help increase the supply of housing has to take these complex, local-market factors into account.
The Role of Innovation
We believe that innovation across the housing value chain – from construction and delivery to financing and conservation – can significantly reduce the costs of buying, renting, and maintaining housing. We are working closely with financial technology companies to develop new ways to make the front-end mortgage process easier and less costly. We are working with innovators in housing design and construction to determine the long-term viability of new methods and modes of housing – from co-housing to modular multifamily construction.
Fannie Mae is working with academics, technology startups, and innovators both inside and outside the housing market to understand and find ways to overcome barriers to creating more housing. We are convening these forward-thinking problem solvers to foster much-needed conversations about the persistent obstacles to housing supply and access. Restrictive zoning and land use laws, labor market shortages, and the high price of traditional building materials are just a few of the complex issues that require cooperation and collaboration with new stakeholders.
The Value of Partnership
Fannie Mae cannot make the kind of progress the country needs all by itself. Happily, however, there are communities all around the country where new collaborations and partnerships are making a difference. Major employers, philanthropies, and local governments in cities such as Denver, Los Angeles, Minneapolis, San Francisco, and Seattle have recently taken difficult but concrete steps to increase housing supply in high-demand areas. We believe stakeholders in more communities will be following their lead, and Fannie Mae is eager to be a part of such efforts.
Whatever our role in increasing the supply of housing, Fannie Mae's engagement is vital. A stable, balanced housing market is essential to our long-term ability to serve the liquidity needs of the mortgage market. If we can make a difference, not only will Fannie Mae help create a healthier housing finance market, but millions more American homeowners and renters will be able to access housing, affordably and equitably. That’s a mission worth pursuing, however we achieve it.
Executive Vice President, Multifamily
March 12, 2019