Note to reader: The purpose of this post is to show the reader that the current discussions by policymakers regarding the housing market problems will only help to ensure future gains for landlords and investors. I am not here to discuss my thoughts on normative economic policy per se. However, all government intervention either stimulates demand and/or restricts supply. Whether or not this is acceptable social policy is up to the reader. One thing here is for sure; current policy initiatives will only assist in the consolidation of wealth in the housing sector over time. Long-term investors and savvy landlords should also take notice regarding what this housing study omits rather than what it says. All these proposed policy initiatives will eventually be arbitraged into the supply/demand equation, which will just result in higher prices for everybody.
- JCHS seems somewhat surprised at how the housing market powered forward despite the pandemic.
- The survey fails to account for the Federal Reserve’s policies in the role of stimulating demand and raising price inflation. Moreover, there is no mention of monetary policy in its analysis as to why wealth disparities are growing.
- The JCHS seems wilfully ignorant to the unintended consequences of government and Fed covid policies
- The JCHS charges the government to enact a number of programs to target homeownership and increase rental unit construction via indirect or direct subsidy. In the long run, this only consolidates government control over the sector.
- Although JCHS contemplates the easing of zoning and local regulations as part of their policy plan, the ever higher price points required for new unit construction will ensure that affordable housing is rarely ever built.
- The JCHS fails to recognize how the rental market changed because of government covid policies.
- Implementation of JCHS suggested policies will only result in the continuation of current trends that will benefit investors and landlords
The market equilibrium in home prices and rents are the result of a number of factors. Let’s consider the government’s role in the housing market. On one hand, direct/indirect government subsidies as well as tax benefits, credits, and exemptions stimulate demand. On the other, government regulations and restrictions at all levels suppresses supply. Thus, I do not consider home prices and rent rates to be exceptionally elevated. This is especially true when we consider the post-covid world.
Recently, I discussed covid’s everlasting impact on housing and rental markets: The covid lockdowns, rent moratoriums, and heavy-handed restrictions are still impacting the market in a number of ways.
The eviction moratoriums with its reliance on government covid-related landlord aid, while no longer in effect for the most part, has caused many small landlords, which traditionally charge less than full market, to begin disappearing from the long-term rental market. The “unintended” consequences of the ad hoc covid housing policies have only helped to centralize the rental market into the hands of the large institutions.
These “mom and pop” investors effectively provided a subsidized form of rental housing, which was largely free of government intervention and regulation, and this housing was a much more cost effective housing subsidy than any taxpayer subsidized unilateral government transfer. I insist the governing authorities and policymakers are not ignorant of this outcome; thus government agencies and its socialist policymakers like JCHS must have different objectives than their stated goals. They gain power and influence by directing policy rather than leaving the sector available to the free market.
Social policy based on racism and income inequality only ensures ever higher home prices and rents
Rather than blaming racial and income inequality, I submit that policymakers should blames their ongoing misguided policy enactments; of which the negative externalities are rarely ever contemplated. Perhaps the true goals of policymakers differ from their publicly announced objectives. Perhaps the unintended consequences of policy enactment are intentional, so as to implement more and to exert more control over the entire market and to centralize its wealth.
To remedy these inequalities [in homeownership], policymakers should be mindful of how much assistance is necessary to make homeownership affordable for each income group and which households are most likely to benefit from this aid. Although households earning 50–80 percent of the area median income would seem to be a prime focus for downpayment programs, even fairly generous levels of assistance—such as the $25,000 included in the Build Back Better budget proposal—would not be enough to make even modest homes in most markets affordable for these households. At the same time, capping eligibility for assistance at 120 percent or more of area median income may be short-sighted.
THE STATE OF THE NATION’S HOUSING 2022, Page 27
JOINT CENTER FOR HOUSING STUDIES OF HARVARD UNIVERSITY, June 22, 2022
One proposed approach is to target downpayment assistance to first-generation homebuyers—households whose families have been excluded from previous efforts to promote homeownership. The CFPB and HUD have also taken steps to support programs providing credit on favorable terms to borrowers of a protected class that has suffered economic disadvantages.
Coupling these type(s) of financial assistance with homebuyer education and counseling, plus funding to increase the supply of homes in communities of color, would go a long way to providing more equitable access to homeownership.
Forget looking to the JCHS to identify and remedy the problems in the rental market
Its remedies will only raise rents with subsidies and government intervention
Other government interventions protected millions of renters behind on their rents from eviction
THE STATE OF THE NATION’S HOUSING 2022, Page 29
Eviction and rent moratoriums may sound like a magnanimous gesture to many disenfranchised renters affected by covid, but the long-term results have permanently restricted the supply of affordable housing, while also raising renter eligibility standards and lowering approval rates for leasing. Since the small landlords were the most profoundly impacted by government covid policy, and as their share of rental units falli at the expense of the large investors, rents will have no place to go, but higher.
Is it really all about systemic discrimination as the JCHS claims? What about the open borders policies that continue to pressure the rental markets? While population growth rates may diminish, the absolute number of renters will rise year in and year out on a consistent basis.
The longer-term picture is quite different from today’s overheated conditions. Over the next decade, the millennials will be replaced in the prime household formation years by a smaller generation, reducing the demand for housing among young adults. At the same time, the baby boomers will age into their late 70s, the time of life when mortality rates begin to rise more quickly. And with overall population growth already at historic lows, household growth will ultimately slow as well, dragging down the demand for rental housing.
THE STATE OF THE NATION’S HOUSING 2022, Page 36
Talk about willful ignorance….
It is a sad state of affairs for the prospective homeowner or renter; government intervention always raises prices under the guise of helping the intended beneficiary. Over the longer run, social largesse and government intervention only work to consolidate the wealth and power of the population into the hands of the few. Recent monetary and fiscal policies implemented in the wake of covid have only helped the income-generating asset owners, and this includes the 6-7% of the population that are direct owners of rental real estate. At what point will the people finally realize that it’s the government that is causing the problems? Are the people even capable anymore? Regardless, please understand that the proposed solutions to the current problems will only consolidate the housing wealth. Be on the right side of the trend.