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Unaffordability – Part III
This is a follow-on to “Paradigm Shift: Rethinking Housing Affordability” and “Addressing the Infill, Low-Income Housing Challenge with Private Capital & the 1031 Exchange Law,” my previous articles on housing affordability challenges.
Priscilla Almodovar, the chief executive of Fannie Mae (the government-backed enterprise that buys one in four residential mortgages in the U.S.), is noted by Marketwatch to be one of the 50 most influential people in the country. Before helming Fannie Mae, she was the head of the New York State Housing Finance Agency during the 2008 housing debacle.
You would think someone of her stature would be able to share some special insight into our housing affordability challenges, other than the tropes and platitudes rampant on social media. But, you would be wrong.
In a recent interview, commenting on what she called a “highly unaffordable" [housing] market, she said she is seeing “things that we’ve never seen before.”
She blames interest rates and the unusual, pandemic-era phenomenon, whereby so many homeowners who refinanced at 3% or less refuse to sell and move to a new home with a 7% of 8% mortgage that it’s created what she refers to as a “lock-in” effect: an illiquid market.
But, even as she lauds the “American Dream,” she fails to mention or is unaware of the many social equity failures, public policy failures, and the extreme concentration of wealth and income at the top (as analyzed in “Paradigm Shift”) that set the stage for the unaffordability of housing and just about everything else.
Ms. Almodover also seems equally oblivious to how real estate markets function, how and why private capital builds housing, or why developers are presently focused on building rental housing versus for-sale housing. And, the rental housing that is being built is mostly for the luxury market and the value of government rental housing vouchers is grossly deficient to pay the rental rate in the very communities they want to make accessible to the average working family.
But most disappointing of all is that in summary, her proffered solutions are nothing more than a regurgitation of thread-bare tropes,
“There’s a consensus today that part of the solution is more supply. Many of the obstacles to increasing housing supply are controlled at the local level. It’s zoning. It’s not-in-my-backyard NIMBY-ism. The No. 1 issue is the local. That’s where decisions really get made.”
What is most astonishing is that she doesn’t seem to realize that her anti-NIMBY mantra is diametrically contrary to the fundamental principles of the “American Dream” she claims to revere -- the values held by middle-class, working families that work hard and save to buy a home: families whose investment of time and money form the bedrock of their communities.
NIMBYism
U.S. Senator Jack Kemp, a die-hard believer in “trickle-down” economics, became Secretary of HUD in 1989. His conviction was that the federal government should divorce itself from financing, building, owning, and operating affordable, public housing (because public housing was failing miserably, everywhere, due to HUD's ineptitude). He believed the government should turn everything over to the private sector. But, to do this, he had to find a way to place the blame for the lack of affordable housing on someone other than HUD.
His ingenious solution was to publish a report entitled "Not in My Back Yard" Removing Barriers to Affordable Housing" (“The NIMBY Report”) in 1991, which was wholeheartedly endorsed by then-President George H. Bush.
The NIMBY Report said,
“[government] Housing policies decrease housing supply. Excessive rules, regulations, and red tape add to the cost of housing.”
The particular focus of that charge was against state and local governments -- the same mantra that Priscilla Almodovar is espousing.
Still, Kemp had other motives. He had to satisfy private developers (major donors), who were lobbying against the wave of new environmental regulations and tenant rights protection laws that came out of the 1970s, all of which were in the way of traditional “slash and burn” development methods (aka “Urban Renewal”) and seriously hurting bottom-line profits.[1]
These development interests are, essentially, the very same ones that are presently financing the YIMBY (Yes in my backyard) juggernaut.
Local Zoning
Zoning has existed since before the city of Eridu was built by the Sumerians in 5,400 BCE. It was used to separate different types of land uses. It existed in ancient Alexandria, Athens, Rome, and the Aztec Capital of Teotihuacan, and right up to the first U.S. zoning laws in Los Angeles in 1908 that prohibited slaughterhouses, tanneries, commercial manufacturing, lumber yards, and any industry using equipment driven by motors from being next to homes.
Historically, residential zoning was used to separate the rich from the poor, freemen from slaves, legal "citizens" from "foreigners," the pious from the pagans, and various ethnicities. (For more on the origins and purposes of zoning, see “Yuppies In My Backyard: Deconstructing Community – PART I”)
Residential zoning driven by racism in the U.S. was a product of slavery but the Civil Rights Act of 1866 prohibited “discrimination in the sale or lease of real estate based upon a person's color or race.” However, its enforcement was non-existent and segregation was widespread until the passage of the Civil Rights Act of 1964, which prohibited discrimination in housing, banking, and everything else “based on race, color, religion, sex, or national origin.”
Recently, single-family zoning has been conflated with racism and elitism by YIMBYs. However, the gaslighting of single-family housing as somehow being “racist” is without evidence.
Although there have always been neighborhoods separated by ethnicity, religion, and race, prior to the federal government building “public housing” in the 1940s (the “projects”), these neighborhoods have also been comprised of single-family homes. In truth, the greatest driver separating various ethnicities and races in the U.S. has been financial and the commensurate lack of access to education, jobs, healthcare, etc.
On the development side, the NIMBYism allegation fails to explain why even market-rate housing production is lagging historical norms. For example, in Mill Valley, where I live, more than a half-mile of our major commercial arterial in and out of town has been zoned mixed-use, commercial/residential for the past 15 years. But even though most of the real estate along the avenue is functionally and economically obsolete, only 2 small projects have been developed in all that time.
Clearly, the factors affecting housing development are more complex than Ms. Almodover imagines.
This brings us full circle to examine homeownership: the basis of wealth creation and inter-generational wealth for the average family.
Wealth Creation
We say that people should pull themselves up by their bootstraps. But, first, you have to have boots.
Before we can even talk about home ownership, where Fannie Mae enters the equation, we have to talk about methods of accumulating wealth. Wealth creation is by far the most important factor affecting housing affordability. And for most families, this comes down to the wages they earn.
As described in great detail in “Paradigm Shift: Rethinking Housing Affordability,” the impoverishment of the American middle-class is well documented in the data. Consider the chart below.
The average American worker has not seen any “real” (inflation-adjusted) gains in earnings since 1980. As such, 80% of Americans have to spend every dollar they make just to break even. Saving for a down payment is impossible.
That considered, they have no money left to own other types of appreciating or income-producing assets, such as stocks and bonds: things that could help them save.
Unfortunately, this leaves those wishing to buy their first home in a terrible bind. And as the chart below shows, this is tragic because for the average, middle-class family, home ownership is the biggest asset they will ever have and the foundation of their inter-generational wealth.
It is encouraging to see a few politicians finally turning their attention to the importance of homeownership. Time will tell if anything comes of it.
[1] I can attest to this, having sat in on conference calls in the 1980s, between developer clients and Jack Kemp and other HUD officials, during which these developers lodged their complaints about how local planning, zoning, and environmental regulations were an impediment to maximizing their profits.
Bob Silvestri is a long-time Mill Valley resident, the Editor of the Marin Post, and the founder and president of Community Venture Partners, a 501(c)(3) nonprofit community organization dedicated to bringing the community's voice to government decision-making and funded exclusively by individuals and nonprofit donors. Please consider donating now to support our work.