For our current members of the America’s Homeowner Alliance (AHA) – and for all the current or aspiring homeowners who should be members of AHA, you undoubtedly have heard about or personally experienced the frustration brewing across America due to the shortage of single family housing available for sale. This document is written to prove there are solutions. If you are not yet a member of the AHA, please help us fix this crisis by joining AHA so your voice can be added to the voice of millions of others experiencing the same frustration as you. Together, we will make these practical solutions come to life. Get your Free Lifetime Membership today at – www.myaha.com.
The data doesn’t lie. There are more Real Estate Agents in America than there are homes available for sale. That’s crazy. The normal supply of single family homes on the market for sale from 1985 to 2020 averaged consistently around 2.5 million units. Today it’s dipped well below 1 million. And without intervention – that number is going to drop even further. There are many reasons why there is such a shortfall, but when compounded with two other factors, we’re in a homeownership crisis like we’ve rarely ever seen. Those two other factors:
A.) with mortgage interest rates hovering near the lowest ever recorded, the demand for single family homeownership is skyrocketing. Anyone who rents can tell you – we’ve reached rent saturation in most of America and rent costs are going up and up. The best way to mitigate rising expenditures for rent is to have a long-term fixed rate mortgage loan.
B.) the investor appetite to purchase single family homes to use for rental to the “would-be” owner occupants is also skyrocketing. It’s a relatively small cash capital outlay to purchase these single-family homes and the renter pays a handsome return on the cash outlay through their monthly rent payment while the property value appreciation is about as good as it ever gets.
Investors win. Single family aspiring homeowners lose. End of story.
Except it doesn’t have to be the end of the story. There are ways to level the playing field for these aspiring homeowners and also to rapidly increase the supply of single family available homes for sale so aspiring homeowners would have a fighting chance. Without these intervention steps – the aspiring homeowner can pretty much kiss homeownership opportunity good-bye.
Here are the fixes necessary to change the paradigm. Pretty simple really – just follow this script and we’ll fix the crisis:
Acquisition – Development – Construction (ADC) Financing for Builders… during the Great Recession, the Bank Regulators imposed brutal and instant restrictions on banks making loans to developers (builders) to cut off the construction of more single family homes. It was brutal. It was instant. In turn, banks passed these brutal and instant restrictions on to builders forcing many of them to shut down construction and many to go out of business. Draconian to say the least. Get this – until very recently, these restrictions were still in place. The banking regulators finally shifted the capital, reserve and leverage restrictions back to where they nearly were before the Great Recession. It appears the banking regulators feel they’ve done a good job. Sorry, not good enough. If you want to STIMULATE – you have to STIMULATE – not revert to levels that were in place before 2008. Is there any place in America where the value of single family homes is going down? Nope. So why can’t the regulators and policy makers see that further relaxation of these regulations is essential to stimulate new construction? Why not cut them in half? Anybody think there is a risk of “overbuilding”? The National Association of Homebuilders (NAHB) reports they are more than a million units behind the household formation of the past ten years. A progressive work group in Washington DC formed about three years ago to tackle the housing supply shortage. (AHA is one of the founding groups). That progressive work group is calling for a “Moonshot Proposal” to build 20 million affordable new homes by the year 2030….because the inventory is needed. Policy makers need to respond to the need and fuel the solution. And if Policy Makers don’t want to relax the standards for new construction of million dollar homes – fine – how about relaxing the standards for every new home built at $300,000 or under – because THAT is where there is frenzied affordable demand.
Regulatory and Compliance Cost…. The NAHB just reported that the average regulatory and compliance cost to build the average home in America just escalated to nearly $94,000 per home. No – that’s not a “typo”. It’s $94,000 per home. It’s impossible for builders to construct affordable homes if they encounter $94,000 of regulatory and compliance cost. That doesn’t include the cost of the land – or the infrastructure – or building materials – or labor – or landscaping – or appliances – it’s simply regulatory and compliance cost. Congress seems to be really good at creating “Commissions” to study everything, so how about this….We propose a “Homebuilding Regulatory and Compliance Cost Reduction Commission” – with one goal described as follows. It’s currently May, 2021. By the end of July 2021 this Commission must produce a report describing how Regulatory and Compliance Cost can be cut in half by the end of this calendar year. And then they would be charged with delivering the solution to cutting the cost in half again by the end of 2022. Now THAT would be a worthwhile Commission!
Affirmatively Furthering Fair Housing…..For years, Policy Makers in Washington required every city in America to produce a report on how their city would Affirmatively Further Fair Housing. Unfortunately, a couple of years ago the Washington leadership at the time decided to do away with the requirement even though many cities in America still receive Community Development Block Grant (CDBG) money and other forms of federal support from the Federal Government. Subsequently, as a result of the COVID 19 Pandemic, Congress passed the Cares Act where cities were appropriated Billions of dollars to help citizens in distress and to help improve housing – and then Congress passed the $1.9 Trillion Stimulus Package appropriating Billions more to cities – and Congress is now contemplating a big Infrastructure Bill to provide Billions more to cities. Before this “new money” gets delivered to cities – or more CDBG money gets dropped in the lap of cities – why can’t there be a requirement for these cities to deliver plans to the federal government on breaking down the zoning or municipal restrictions that impinge the construction of affordable single family homes in their cities – or a plan to incent local builders to build affordable homes for owner-occupants – or plans to use these “windfall” Billions to retrofit or renovate vacant homes owned by the cities – or convert vacant commercial property to affordable owner-occupant homes BEFORE the cities get the money? That may seem too simple and too logical….because it is!
First Look Requirements……government agencies (like Fannie Mae, Freddie Mac, FHA, VA, Rural Housing, Local Municipalities, and others) own big volumes of single family vacant properties that have been taken back because of delinquent taxes or been foreclosed or other legitimate reasons. In addition – there are similar volumes of vacant properties sitting on the books of lenders in America classified as Real Estate Owned (REO) assets. Consumers wishing to become owner-occupants of these properties should be granted an extended “First- Look” opportunity to secure financing necessary to purchase and repair (when applicable) these homes BEFORE investors can swoop in to purchase them for the express purpose of renting them back to the same people who would otherwise be the owner-occupant. That extended first-look for owner-occupants might need to be 6 months in duration. If a property hasn’t sold and closed in that time frame, then the property owner should be allowed to seek a sale through whatever means necessary. But owner-occupant homeowners needing 45-60 days or more to complete financing and 60-90 days more to complete repairs (if necessary) are simply not going to be able to compete with “cash offers” from investors. If we want to meet the needs of owner-occupants, we’re going to have to create policies that deliver the desired outcomes. An extended first-look opportunity for owner-occupants seems to be a simple but practical policy change that meets that objective.
FHA 203k for Homeowners through Non-Profits and Cities…..the FHA 203K mortgage program is unique. Here’s how it works. Instead of an aspiring owner-occupant having to make a bid to buy a property that needs repair and secure financing for the property and separate financing to do the repair work, the FHA allows an owner-occupant to submit the bids for the repairs and include those costs in one long term fixed rate mortgage. The aspiring homeowner buys the home and the repair money is put into an escrow account and dispersed as the repairs are completed by reputable contractors. It’s a great program for first time homebuyers because traditionally, these homes that need repair come with lower sales prices. And here’s the BIG WIN for America. There is a rather obscure provision in the FHA 203K program that allows Non-Profit Entities and most Cities of America to actually use this program as if they were the owner-occupant. They can obtain a fixed rate 30 year mortgage with the rehabilitation costs built into the loan – use the FHA money to repair the property – AND THE 30 YEAR FIXED RATE LOANS ARE ASSUMABLE BY QUALIFIED OWNER OCCUPANTS!!! There are millions of these vacant single family homes in need of repair. Aspiring homeowners don’t usually see these properties or bid on them because of the cost of the repairs – but Cities or Non-Profits could obtain one of these FHA 203K mortgage loans – complete the repairs and have a habitable property with an Assumable 30 year fixed rate loan awaiting the owner-occupant. This could bring millions of affordable homes into the supply category. The only problem is – the FHA hasn’t done a loan like this for nearly 40 years even though the program is absolutely on the books and alive and well. Jump-starting this 203K mortgage program could bring millions of renovated affordable homes into the supply necessary to meet the tsunami of demand. This is a “strategic imperative” for America and Policy Makers should demand the program be fully re-started by the FHA.
Incentives to Drive Behavior….. If Policy makers really wanted to fix the single family housing inventory supply problem, they would build in some incentives for existing homeowners to list their homes for sale and purchase an upgraded home. Instead of providing down-payment assistance programs for aspiring homeowners or other tax relief to multi-family rental unit developers – why not deliver a meaningful tax incentive to sellers who are currently reluctant to list their home for sale because they are afraid they can’t buy a “move-up” home. If Policy Makers are willing to construct a new Infrastructure Bill as they apparently are doing right now, why not provide a meaningful tax incentive to inspire affordable listings of inventory and then provide a “Specified Pool” of mortgage money available to “move-up” consumers at 1% interest. The Federal Government is buying and holding most of the mortgage paper produced in America and there is no reason the Federal Government couldn’t make a stimulus program like this work to inspire the desired behavior. If given the right tax incentives to list and sell affordable homes (maybe those under $500,000) and then give those people who listed and sold their homes an opportunity to take advantage of an extra incentive to purchase a “move-up” home with a 1% interest rate 30 year mortgage, the supply of affordable homes for sale would increase dramatically. Homebuilders could then focus on building more properties of $500,000 or above to accommodate those “move-up” buyers. It would help solve the affordable owner-occupant housing shortage; stimulate new tax revenue; and create more jobs. Seems like a win-win-win solution.
Tariffs and Environmental Fixes.....It seems impossible that the United States imposed tariffs on Canada and other countries that imported big supplies of lumber to the United States in a time when America was experiencing a shortage of lumber to rehabilitate existing homes or build new ones due to the overwhelming homeownership demand. But tariffs were installed and as a result, the price of a “board-foot” of lumber has jumped from approximately $400 to around $1,600 in just a couple of years. Some of America’s environmental laws are adding fuel to the fire of this problem. Apparently the United States has imposed restrictions on the trees that can be harvested in our forests. Apparently there is a prohibition from harvesting trees in US forests unless there is a measurable density of 100 trees per acre. Apparently the requirements in other countries (such as Canada) are far less, meaning the harvested supply can be much greater. Apparently there are Builders in the northeast of America actually importing lumber from Russia to meet the consumer demand. These environmental regulations and these head-scratching tariffs could be relaxed with the stroke of a pen. To compound the conundrum, apparently in the United States when lumber harvesters actually take a tree from these US forests, they plant TWO trees to replace the one. Relaxing these restrictive and punitive standards could easily increase the supply of domestic lumber available – increase jobs - and help homebuilders solve the affordable single family housing inventory shortfall.
With your help, we’ll make these solutions come to life. Join the America’s Homeowner Alliance today and receive your FREE Lifetime Membership by visiting our website at – www.myaha.com.