By Robert M. Ruzzo
From Capitol Hill to Beacon Hill, 2017 promises to be a very “interesting” (and perhaps difficult) year for housing aficionados. First of all, on the national front, the impact of tax reform (particularly its impact on the affordable housing tax credit world) is likely to be front and center. In addition, although the details are still evolving, it is difficult to imagine a (potentially) $1 billion infrastructure proposal that would not have a major impact upon Transit Oriented Development efforts. Rumor also has it that long ago in a galaxy far away, reform of the government sponsored enterprises (the “GSEs,” a/k/a Fannie Mae and Freddie Mac) was once imminent. If GSE reform is going to happen within the lifetime of any life presently in being, the current session of Congress might seem as likely a time as any, but the betting window is still wide open on that one.
Meanwhile, the debate over zoning reform is sure to resurface on Beacon Hill, and it is once again time for a new Housing Bond bill. Mix in some potential measures at the state level to counteract, offset or capitalize upon whatever comes out of Washington, and are things interesting enough for you yet?
If you can tear yourself away from this political back and forth long enough to ruminate upon any other housing issue, kindly consider the following as a way to add an eggbeater to already troubled waters: take a look at the homeownership rate in our otherwise economically vibrant Commonwealth, particularly the five counties comprising Greater Boston.
Like the MBTA in the fall of 2014, the plummeting homeownership rate in Greater Boston has all of the hallmarks of a crisis hiding in plain view. While five counties do not a Commonwealth make, one would have a hard time arguing that homeownership is substantially more achievable to the average citizen in Barnstable, Dukes, or Nantucket Counties. When combined with Greater Boston (as defined in the Report Card), this would represent 8 of the state’s 14 counties and more than two thirds of the state’s total population.
The drop (plummet) in homeownership is the most underplayed issue to emerge (or not emerge) from the 2016 Greater Boston Housing Report Card. And while the swing of the pendulum in favor of “funky” downtown apartments explains some of this phenomenon, not everyone wants to spend their entire life in a micro unit, no matter how vibrant the surrounding neighborhood may be.
Massachusetts has always been somewhat of a laggard in terms of its homeownership rate due to our restrictive local zoning and high housing costs. Nationwide, the homeownership rate grazed the 69% level before crashing back to earth in the throes of the Great Recession. According to U. S. Census Bureau data, the nationwide homeownership rate was 63.7% in the fourth quarter of 2016. The homeownership rates for African Americans and people of Hispanic origin are far lower, averaging in the mid-40% range.
Of particular interest in Greater Boston is the homeownership rate among “Prime Age Households” (those between 25 and 44). The facts are there in all their shocking glory in Table 2.2 of the Housing Report Card.
In Greater Boston, in the year 2000, 67.2 % of all households between 35 and 44 (the choicest of the Prime Age Households) were homeowners. After the Great Recession, in 2010, that rate had fallen to 65%; however, even more troubling is the fact that since then, in the years 2011-2014, the decline in homeownership in Greater Boston has been more than twice as fast as it was between 2000 and 2010. Between 2011 and 2014, the homeownership rate in this age group plunged to 58.9%, despite historically low interest rates.
For those between the ages of 25 and 34, less than one third (30.2%) are homeowners according to the most recent data published in the Report Card, compared to 40.7% in the year 2000. With increasing student loan debt levels, rising home prices and now rising interest rates, it’s unlikely that trend will improve dramatically any time soon. The expiration, at the end of 2016, of the ability to deduct mortgage insurance premiums will not help matters.
Homeownership-the engine of middle class expansion in post-World War II America (and a fundamental means of wealth creation)-is becoming less viable for an increasing number of young citizens in Massachusetts, particularly in Greater Boston.
A few points worth noting:
First, there is no immediate, sweeping solution, as the single family mortgage business is a retail business.
Second, there is an opportunity for some light to pierce this darkness, particularly in Gateway Cities (and perhaps, most particularly, for Gateway Cities with good rail links to the downtown Boston core).
Third, never forget that much of this is the result of our anemic housing production efforts.
Finally, even for a potential borrower with a healthy income and excellent credit, the so-called “wealth barrier” (accumulating a sufficient down payment) remains a nearly insurmountable hurdle on the path to homeownership.
What can be done?
With any luck, “teaser rates,” no document “liar loans,” and similar vices from the last great boom will remain consigned to the ash heap of history. Nonetheless, riskier low down payment loans are going to be a part of any solution, but they must be coupled with strong buyer education programs. If the last crash taught us anything, it is that an educated consumer can make a riskier loan product viable.
MassHousing’s Mortgage Insurance Fund, the MassHousing Partnership’s “One Loan” Program, and FHA low down payment loans will be more in demand than ever.
One of the more creative suggestions heard recently at an industry meeting was for the state’s quasi-governmental agencies, particularly MassHousing, to work with the management companies within its rental portfolio to identify (and groom) future homeowners from the leading ranks of tenants. Employer based programs to foster homeownership may also need to move beyond the beta stage.
Some additional original thinking along these lines is very much needed.
Bob Ruzzo is senior counsel in the Boston office of Holland & Knight LLP. He possesses a wealth of public, quasi-public and private sector experience in affordable housing, transportation, real estate, transit-oriented development, public private partnerships, land use planning and environmental impact analysis. Bob is also a former general counsel of both the Massachusetts Turnpike Authority and the Massachusetts Housing Finance Agency; he also served as chief real estate officer for the turnpike and as deputy director of MassHousing.” Bob can be contacted by email at firstname.lastname@example.org.