Senate Banking Committee Hearing on Housing in America
Senate Banking Committee
Home = Life: The State of Housing in America
Tuesday, March 16, 2021
Witnesses
- Dr. Chris Herbert, Managing Director, Harvard Joint Center for Housing Studies
- Ms. Diane Yentel, President & CEO, National Low Income Housing Coalition
- Ms. Nikitra Bailey, Executive Vice President, Center for Responsible Lending
- Mr. Edward J. Pinto, AEI Housing Center
- Mr. Ed DeMarco, President, Housing Policy Council
Opening Statements
Chairman Sherrod Brown (D-Ohio)
In his opening statement, Brown noted how it has been nine years since there was a hearing discussing the state of housing in America, and that doing so is today’s purpose. Brown said that while the stock market is up, interest rates are at record lows, and home prices have increased, that isn’t the whole story. Brown explained that paychecks haven’t kept up with the cost of living and gave the example of how the pandemic’s essential workers don’t make enough to afford a two-bedroom apartment anywhere in the country. Brown argued that millions of renters were paying half of their income in rent, and that for half of Black and Latino renters there was little money left over. Brown said that saving for a down payment is not a reality. Brown also noted that many homeowners are paying over a third of their income for housing, the number of low-income homeowners is declining, and the Black homeownership rate is as low as it was when discrimination was legal. Brown argued that while the American Rescue Plan was a rescue, returning to the same broken system is not enough. Brown stated that there is an opportunity to make lives better through housing policy.
Ranking Member Pat Toomey (R-Penn.)
In his opening statement, Toomey noted that a step has been taken towards socializing housing, as the already $40 billion spent on housing funding has doubled. He said additional assistance has been provided before the distribution of December spending. Toomey argued that those most at risk of homelessness have received more from the government than what they lost and asked how it was fair. Toomey stated that last week’s American Recovery Act added to an already vast government role in housing, providing an extensive list of examples. Toomey argued that the government is the problem, not the solution. Toomey stated that the fifty years and hundreds of billions in federal housing support have not had a meaningful impact on homeownership rates. He said that government policies are making housing more expensive. Toomey concluded that the role of government should be scaled back.
Testimony
Dr. Chris Herbert, Managing Director, Harvard Joint Center for Housing Studies
In his testimony, Herbert noted the importance of housing to the broader economy. Herbert stated that there are five key housing challenges across the country. First, Herbert said that renters face severe cost burdens and rental assistance should be expanded. Second, Herbert said that there are barriers to the construction of modestly priced homes. Third, Herbert said that the access to sustainable homeownership should be expanded. Fourth, Herbert said the high levels of residential segregation need to be addressed. Fifth, Herbert said that homes must be made more resilient. Herbert argued that good quality, secure, and affordable housing is foundational for a healthy and productive life, and that investment in such housing would pay substantial dividends to these individuals and society at large.
Ms. Diane Yentel, President & CEO, National Low Income Housing Coalition
In her testimony, Yentel stated how COVID-19 and the economic collapse of 2020 devastated millions of families, causing a disproportionate impact on people of color and people with low incomes. Yentel argued that racial disparities in housing contribute to inequitable health outcomes. Yentel said that Black people, Native Americans, and Latinos are more likely to be renters and experience homelessness. Yentel explained that affordable homes are necessary for public health, but that this is hard to do because of the pre-pandemic shortage of affordable housing. Yentel said that the funds for emergency rental assistance and other resources in the American Rescue Plan will go a long way.
Ms. Nikitra Bailey, Executive Vice President, Center for Responsible Lending
In her testimony, Bailey stated that homeownership is the bedrock of the American middle class, but entire taxpaying communities have been left behind. Bailey stated that some can shelter in place, benefit from the stock market, and watch homes increase in value. Conversely, she said that essential workers face economic uncertainty, with many families suffering from reduced wages and having to wait in food pantry lines. Bailey argued that the nation’s housing policies are a core cause of these interconnected inequities. Bailey noted that the Homestead Act and the New Deal subsidized land and homeownership, but redlining meant these benefits were mostly for white Americans and excluded Black Americans and others. Bailey said that the opportunities of white Americans contrasts those of Black and Brown families who have been denied the chance to build equity. Bailey stated that housing discrimination is widespread, and action must be taken to eliminate racist structures and create inclusive communities. Bailey argued that new substantial investment is needed and success of our future economy depends on Black and Hispanic homebuyers.
Mr. Edward J. Pinto, AEI Housing Center
In his testimony, Pinto said that the goals of making homes affordable for lower-income households and achieving generational wealth for lower-income homeowners have not been met. Pinto noted the 100th anniversary of the creation of federal government zoning and land use policies designed to make it too expensive for racial and ethnic groups to live in new homes and neighborhoods. Pinto said that he estimates that since 1940 this has prevented the construction of nearly eight million homes, exemplifying the broken housing system. Pinto stated that home prices are rising faster than incomes, pricing people out of the first rungs. Pinto cited statistics outlining that last year inventory was down 47 percent from two years prior. Pinto argued that the market is far from equilibrium, backing this up with statistics showing that prices are 14 percent above long-term trends and that the trend is rising. Pinto stated that in comparing home prices to fundamentals, since 2012, home prices have gone up two to three times faster than fundamentals. Pinto argued that the bigger the gap, the more painful the correction.
Mr. Ed DeMarco, President, Housing Policy Council
DeMarco address four broad topics in his testimony: the pandemic, the racial ownership gap, housing supply, and housing finance reform. DeMarco said that the housing finance system and mortgage servicers responded effectively to the needs of homeowners with disrupted incomes due to business shutdowns. DeMarco explained how mortgage payment forbearance was provided, and that by mid-April, two million families had received forbearance. DeMarco stated that over the past year, nearly seven million families have been on forbearance, more than half of which have resumed making payments. DeMarco claimed that despite these efforts, there is more work to be done. DeMarco noted the challenge in addressing the racial gap in homeownership but said it’s also an opportunity to think differently about effective ways to promote sustainable homeownership. DeMarco stated that the long-term public policy goal is wealth building. DeMarco concluded by arguing that the key is building more housing, as the lack of supply in rental and ownership is a challenge, while also recognizing the importance of housing finance reform.
Question & Answer
Housing Reform
Toomey asked if the current state of our economy reinforces the case for housing finance reform and what advantages his recent reform proposals offer. DeMarco said Toomey’s proposals would improve many aspects of the crisis, and that sooner is better than later to begin this process as it will take years to correct the issue. He added that these proposals would bring greater competition to the housing market, spur innovation, shrink the racial homeownership gap, and bring a reduction in systemic risk.
Sen. Mark Warner (D-Va.) mentioned his interest in introducing legislation to provide shorter mortgages to first generation home buyers and asked how this would help close the ownership gap. All witnesses were supportive and viewed this as a well-designed, targeted program that will combat racial disparity in homeownership. Pinto and DeMarco said it will help subsidize wealth and equity building. Bailey emphasized that targeting assistance to first generation home buyers can go a long way and really help communities of color.
Sen. Chris Van Hollen (D-Md.) outlined the Family Stability and Opportunity Vouchers Act and asked panelists how this bill will help address challenges we face. Yentel noted her support for this legislation because housing choice vouchers are proven to help end homelessness. Van Hollen also asked about the benefits of introducing a rental insurance program. All panelists stated their support for this type of program and noted that it would be cost effective to have permanent emergency relief for low-income families, thereby allowing them to pay a small amount permanently to ensure they keep their homes rather than dealing with the aftermath of many foreclosures.
Brown asked what is needed to preserve affordable housing. Yentel said there is a tremendous need to build more housing but also to preserve what we have right now. She said there needs to be an infusion of funds into tools like project based rental assistance. Brown also asked how we can help low-income families find lenders to make loans and get affordable smaller mortgages. Bailey said we need to encourage larger lenders to make these loans and make sure there is affordable credit.
Housing Shortage
Sens. Jon Ossoff (D-Ga.), Tina Smith (D-Minn.), Elizabeth Warren (D-Mass.), and Steve Daines (R-Mont.) all focused on the root cause of the housing crisis being the lack of supply and increased demand for affordable housing. They asked how Congress can support more supply in housing. Witnesses said allowing for greater density of housing where it’s needed, particularly in walkable city areas, as well as reducing barriers to building more affordable housing. Regarding density, Yentel said the Fair Cost Amendment limits the total number of affordable housing units. Sen. Bob Menendez (D-N.J.) asked about the benefits in coordinating housing and transit development, particularly for cohorts like seniors and millennials. Herbert said if we can invest in transit and tie it to localities while allowing greater density in communities, the benefits will go a long way. Herbert also noted that this could lead to reduction in the carbon footprint as a yet another benefit. Regarding building costs, Yentel said particularly in the private market, building costs get driven up, but the issue for low-income renters and public housing is underfunding. Yentel outlined her support for Warren’s legislation around public housing and believes the condition of most of the existing public housing is in deep disrepair.
Housing Price Appreciation
Daines said that as a result of low supply to cover demand, there is a concern around the rapid housing price appreciation. Pinto said national housing prices continue to be at record highs every year and create a tremendous problem for the future. He said it will be nothing close to what happened in 2007, but it will hurt low income and minority buyers the most.
Toomey asked for confirmation that in recent years, housing prices have increased faster than income in many markets, and prices cannot continue to rise like this indefinitely. He said the housing market is overheated and asked if prices will have to converge at some point in the foreseeable future. Pinto said prices will have to converge at some point because this type of growth outweighing income appreciation is not sustainable.
Preventing Evictions and Foreclosures
Sen. Jack Reed (D-R.I.) mentioned funding included in the American Rescue Plan and asked how homeowners have been impacted by COVID-19 and why these resources are necessary investments. Yentel said an estimated 10 million renter households have accrued $50 billion in rent and utility arrears, and they remain at high-risk of losing their homes during the pandemic, so these emergency dollars will be immediate relief to them. Bailey said these investments are crucial because even before the pandemic, a huge portion of Americans did not have funds to cover even $400 of emergency expenses. Herbert said forbearance support from the government has been incredibly helpful, but as we look forward to September when the period ends, many of these homeowners will still face accumulated debt and permanent losses of income. These investments in the ARP will help people keep their homes and prevent the homeownership gap from widening.
Menendez outlined his fears that after the current moratoria ends, we may face a great wave of evictions and foreclosures. He asked what impact the new housing counseling funding will have in preventing this. Bailey said foreclosures have been disproportionately affecting minority communities well before the pandemic started, and this funding will go a long way to help communities get the information they need in order to weather this pandemic and keep their homes.
Sen. Thom Tillis (R-N.C.) asked what metrics we should be using to detect the back-rent risks, and if Congress’ actions been adequate up to this point. Herbert said we have information about certain pieces of the market, but we cannot see what individuals must do behind the scenes to make that rent payment as a result of income loss. Bailey said we have to ensure that protections are extended for privately backed mortgages.
Rural vs Urban Housing
Sen. Jon Tester (D-Mont.) asked panelists for their overall view of housing in rural America compared to urban America. Herbert and Pinto said the challenges are similar in both, we see areas that are impoverished and some that are thriving. Herbert said we need to expand access to workforce rental housing in rural areas and make investments to increase the quality of housing. Pinto said sensible steps at the local and state level would be to increase supply, and reduce income stratification, by legalizing 2-, 3-, and 4-unit structures in single family areas, as well as increase density related zoning laws. Yentel added that the shortage of homes for low-income individuals is pervasive throughout both rural and urban areas, and that expanding the national housing trust fund is crucial. DeMarco said rural areas have a predominance of low balance loans and we should encourage government agencies to develop loan products.
Smith asked what barriers exist to building new workforce housing in rural communities and how we can address challenges in these areas. Herbert said the same problem exists in rural and urban areas, that housing prices are growing faster than incomes. He said low-income housing tax credits require a certain scale to make them work so we need to think of other programs and put more resources through those channels.
Credit Risk Transfer (CRT)
Sen. Mike Rounds (R-S.D.) raised his concerns over the Federal Housing Financial Association (FHFA) finalizing its capital rule to increase what government-sponsored enterprises (GSEs) hold, noting that it reduces the GSE leverage but might have punitive treatment of CRT. Rounds said GSEs need every tool available to manage this risk. He asked how much more difficult it will be for them to raise capital and if it needs to be revised. DeMarco complemented the FHFA for putting out a comprehensive capital framework but noted that the treatment of CRT is a weakness. He said GSEs will have to build more capital to meet the requirement, meaning we will concentrate more risk on GSEs and reduce incentives to do CRT. Bailey said the rule does not do enough to broadly distribute systemic risk. Pinto said his concern is if we see a market meltdown at some point, the CRT market might disappear.
Home Mortgage Disclosure Act (HMDA)
Sen. Catherine Cortez Masto (D-Nev.) asked the panelists how many of them rely on the HMDA data, and if the recent change to limit HMDA data has impacted their ability to conduct research on whether there is redlining or discrimination happening. Pinto said they rely tremendously on this data, but they won’t know the exact impact until they receive 2020 data to compare with 2019 data. Herbert and Bailey said if we want a complete picture of lending data in this country, we cannot afford to lose HMDA data because we will not be able to monitor what we cannot see.
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