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 robert.ruzzo@hklaw.com.