The Most Underappreciated Part of the Bipartisan Housing Bill
President Donald Trump surprised just about
everyone in Washington, Republicans and Democrats alike, when he announced on Wednesday that he was canceling an
afternoon signing ceremony for the biggest housing bill to pass Congress in decades. He’s
holding the bill hostage over his unreasonable demand that lawmakers first pass
the Save America Act, the Republicans’ voter suppression bill, which doesn’t
have the votes to pass the Senate. As Democratic Senator Elizabeth Warren, a
key supporter of the housing bill, said, “He could
be over here trying to claim a victory lap. And instead, he’s saying no, no he
doesn’t want anything to do with it.”The fate of the bill is unclear. (It passed with veto-proof margins, but then there’s the possibility of a “pocket veto.”) But if it becomes law, more than 60 measures will take effect with the goal of increasing housing by waiving some
regulations, increasing grants to communities that encourage building, updating
rules on manufactured homes, and preventing large
investors from buying single-family homes. Many of the provisions were big asks
from the abundance movement.Proponents of these measures hope that they
will increase housing supply and therefore lower prices, putting homeownership
back within reach for middle-class families. But there’s a smaller provision
that could be just as important. The bill includes pilot programs to address a
gap in the housing market that keeps families from getting mortgages on
already inexpensive homes because it’s often not profitable for lenders to
issue smaller mortgages. Addressing this gap could bring the best idea of the
abundance movement—that public policy should focus more on increasing
housing supply—to distressed and rural communities where aging, inexpensive
homes already exist.The provisions deal with “small-dollar
mortgages,” defined as those less than $100,000, for homes that are often
called “naturally affordable”—which is to say, cheap. They’re often priced
affordably because they’re small, old, in a less expensive neighborhood, or
some combination of the three. Such homes are not a big part of the market, but
they could be exactly what working-class families who want to move from renting
to homeownership need, especially in certain areas of the country.“These small-dollar, or low-cost, homes
comprise only about 3 percent of active listings; that’s about 32,000 homes
that are under $100,000 today,” said Aniket Mehrotra, a policy coordinator at
the Urban Institute’s Housing Finance Policy Center. “However, in rural areas
of the country the share of active listings is greater.”Yuliya Panfil, director of the Future of Land
and Housing program at the nonpartisan think tank New America, calls this “affordable
housing hiding in plain sight.” While
many homes are simply too expensive for low- and moderate-income families to
buy, these are well within their price range but difficult if not impossible to
get mortgages approved for. “The result of these often-invisible challenges is
that millions of starter homes sit in a financing no-man’s-land—too
complicated for most buyers to access and too overlooked by policymakers to
fix,” Panfil wrote
at Bloomberg CityLab. “We are struggling to build new homes fast enough as
millions of existing affordable homes quietly go to waste.”Researchers at the Urban Institute in 2018 documented the problems families face when
trying to buy these less expensive homes. “Lenders weren’t originating
small-dollar loans even where affordable properties existed, locking out
working-class families not because of creditworthiness, but because the loan
economics didn’t work for lenders,” said Alanna McCargo, a senior fellow for inclusive capitalism at the Clinton Foundation and nonresident fellow at the
Urban Institute who worked on the original report. This dynamic keeps families
out of homeownership, pushes them into less secure loans, or encourages them to
buy more expensive homes they struggle to afford.It’s unclear what banks need in order to issue
more of these loans, so the bill creates pilot programs to study and implement
possible fixes, including requiring the Consumer Financial Protection Bureau to
study compensation rules and caps on fees to mortgage lenders to potentially
encourage more small-dollar lending, and a Housing and Urban Development pilot
program to increase access to these loans.But encouraging more lending isn’t the only solution.
Much of this housing stock is in smaller cities far from the booming coastal
megalopolises where abundance proponents live, and the homes are also aging.
Even if families find willing lenders to buy an older home, the houses may not
appraise or pass inspection. Families already living in them are also often
locked out of financing to make necessary repairs that would enable them to put
their homes on the market again and move on, freeing them up for new families
to buy.The bipartisan housing bill only provides
limited provisions on rehabilitating old homes, primarily for elderly and
low-income homeowners, and doesn’t provide new funding for existing grant
programs. “Focus on this bill is predominantly on building new housing,”
Mehrotra said. “However, we have an aging housing stock in this country. The
majority of our housing stock was built before 1980, which indicates that many
homes are in need of repair, particularly in certain markets, like in rural
areas, [and] in cities like Philadelphia or Baltimore, and so it is critical
that we also prioritize home rehabilitation.” Developers are also often
unwilling to renovate or rebuild older homes in neighborhoods where they can’t
get their money back. Mehrotra said that proposed legislation to tackle that
problem was not included in this bill but could be revisited in the future.Still, Panfil’s colleague at New America,
Sabiha Zainulbhai, called the measures “exciting progress on figuring out how
to unlock this critical housing supply for first-time and low- and moderate-income buyers, especially at a time when homeownership is inaccessible for a
growing segment of the population.”There’s other work to be done on housing, of
course, like more rental assistance for low-income families,
which is a nonstarter in this GOP-controlled Congress. And while Trump sits on
the housing bill, many American families have already given up on the homebuying dream because they
simply can’t afford it. This bill won’t fix those problems overnight.
“Implementation takes time, and families who need a small-dollar mortgage today
and thousands of families already left behind by rising home prices over the
past decade won’t benefit from this,” McCargo said. “But it’s a step in the
right direction, and one we’ve been working toward for years.”This article has been updated to clarify the bill’s potential fate.