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WHY IS THIS IMPORTANT?

Housing

Today’s housing market is the most difficult in four decades. The median home price in America is $420,000, an increase of almost $100,000 in just four years. Simply put, thanks to expensive home prices and high mortgage rates, buying a home is beyond the reach of most American families. To make matters worse, together, insurance and property taxes now cost more than many mortgages and utility costs and homeowners’ association fees are also on the rise.

Much of the problem comes down to supply and demand. The bottom line is that America has a deep housing shortage. In 1972, when the U.S. population was just over 200 million, nearly 2.4 million new homes were built. Fifty-two years later, in 2024, only 1.4 million homes were added – for a population of over 335 million.

When you look at it that way, the answer seems simple: We need a combination of lower mortgage rates and more housing units, right? Yes, but there are many challenges, side effects, and unintended consequences that come with that answer.

That said, the good news is that there are innovative ways we can make headway here. From May 1969 to the mid-1970s, the Department of Housing and Urban Development (HUD) executed Operation Breakthrough, a 3-phase demonstration that tested groundbreaking building materials and methods. The program was designed “to identify and demonstrate solutions to obstacles preventing large-scale housing production in the nation, with the goal of volume production of quality housing for all income groups.” The demonstration “sought housing system improvements, while at the same time, improved environmental quality and low-cost maintenance.”

At the time, George Romney, who was Secretary of HUD in the Nixon administration, reiterated that Operation Breakthrough was “not a program designed to see just how cheaply we can build a house, but was a way to break through to total new systems of housing production, financing, marketing, management, and land use.”

We should launch a modern-day Operation Breakthrough to harness the ingenious, creativity, and resourcefulness of Americans.

In Phase One of the original program, for example, 22 “Housing System Producers” were chosen from over 200 competitors to visualize designs, create engineering blueprints, and develop and execute the construction of prototype housing units. The winners utilized housing models ranging from precast concrete- or wood-framed modules to units constructed from plastic or metal. Just imagine what those prototypes would look like today!

But, again, regardless of the path or paths we take, we need to anticipate and minimize the unintended consequences that can come with them. For example, one of the most helpful things we can do to make home ownership more accessible to Americans is to make it easier for them to purchase “small-dollar” homes – or homes that cost less than $150,000 – that already exist.

However, from 2004 to 2021, the number of people receiving small-dollar mortgages fell by almost 70 percent. To put this spiral in perspective, in 1940, 70 percent of new homes were 1,400 square feet or less. In 2022, that number was just 8 percent.

One of the main reasons for this is that, after the 2007-2009 Financial Crisis – which was sparked by the original sin of people receiving home loans they couldn’t afford – provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the legislation that was passed to prevent these kind of crises in the future) made it far less profitable for most banks to work with smaller loans. While, on one hand, this is understandable given what the country had just been through, these rules disproportionally hurt community banks, the very ones that usually serve lower-income buyers.

To make this even more tricky, often these lower-cost homes don’t qualify for loans even when they are available because the homes are often old and in poor condition. This is a double whammy because, not only can first-time homeowners not buy them, but entire neighborhoods begin to deteriorate and eventually become stagnant. When it gets to this point, the only people who can afford to risk turning these neighborhoods around are corporate investors, whose plans for development further shut out Middle Class Americans.

Analysis by the Urban Institute, a think-tank, found that, from 2018 to 2021, corporate investors bought almost 30 percent of homes under $100,000, compared with just 7 percent of homes that cost over $100,000.

Another example of a plan that has huge negative consequences is one like Kamala Harris, the 2024 Democratic candidate for president, proposed in the last election. A key part of the plan was to provide first-time home buyers with $25,000 in down-payment support, at a total cost to the nation of $100 billion over four years. This perk would be available to over 4 million households.

On the surface, this sounds like a nice thing to do for people. However, it would most certainly lead to higher home prices in the end, because one of the most basic laws of supply and demand is that an increase in demand without a corresponding increase in supply will result in higher prices. Although her plan did call for the construction of 3 million new housing units – both for rent and sale – over the next four years, it didn’t specify how that would actually happen.

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