[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
BOOM AND BUST: INEQUALITY,
HOMEOWNERSHIP, AND THE
LONG-TERM IMPACTS OF
THE HOT HOUSING MARKET
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VIRTUAL HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
__________
JUNE 29, 2022
__________
Printed for the use of the Committee on Financial Services
Serial No. 117-91
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
48-335 WASHINGTON : 2022
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri ANN WAGNER, Missouri
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut ROGER WILLIAMS, Texas
BILL FOSTER, Illinois FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
CINDY AXNE, Iowa TREY HOLLINGSWORTH, Indiana
SEAN CASTEN, Illinois ANTHONY GONZALEZ, Ohio
AYANNA PRESSLEY, Massachusetts JOHN ROSE, Tennessee
RITCHIE TORRES, New York BRYAN STEIL, Wisconsin
STEPHEN F. LYNCH, Massachusetts LANCE GOODEN, Texas
ALMA ADAMS, North Carolina WILLIAM TIMMONS, South Carolina
RASHIDA TLAIB, Michigan VAN TAYLOR, Texas
MADELEINE DEAN, Pennsylvania PETE SESSIONS, Texas
ALEXANDRIA OCASIO-CORTEZ, New York RALPH NORMAN, South Carolina
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts
Charla Ouertatani, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
June 29, 2022................................................ 1
Appendix:
June 29, 2022................................................ 51
WITNESSES
Wednesday, June 29, 2022
Calhoun, Michael D., President, the Center for Responsible
Lending........................................................ 4
Chandan, Sameer, Director of the Center for Real Estate Finance
Research and Professor of Finance, NYU Stern School of Business 6
Choi, Jung Hyun, Senior Research Associate, the Urban Institute.. 8
Michel, Norbert J., Vice President and Director of the Center for
Monetary and Financial Alternatives, the Cato Institute........ 11
Pope, Lydia, President, National Association of Real Estate
Brokers (NAREB)................................................ 10
APPENDIX
Prepared statements:
Calhoun, Michael D........................................... 52
Chandan, Sameer.............................................. 62
Choi, Jung Hyun.............................................. 75
Michel, Norbert J............................................ 86
Pope, Lydia.................................................. 103
Additional Material Submitted for the Record
Waters, Hon. Maxine:
Joint written statement of the Cedar Band of Paiute Indians,
the Lower Brule Sioux Tribe, and the Rosebud Sioux Tribe... 108
Written statement of the National Association of REALTORS.... 117
Written statement of UnidosUS................................ 119
Written statment of Zillow................................... 126
Garcia, Hon. Sylvia:
Written responses to questions submitted to Jung Hyun Choi... 133
BOOM AND BUST: INEQUALITY,
HOMEOWNERSHIP, AND THE.
LONG-TERM IMPACTS OF
THE HOT HOUSING MARKET
----------
Wednesday, June 29, 2022
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 12:07 p.m., via
Cisco Webex, Hon. Maxine Waters [chairwoman of the committee]
presiding.
Members present: Representatives Waters, Sherman, Scott,
Cleaver, Perlmutter, Himes, Foster, Beatty, Gottheimer, Lawson,
Axne, Pressley, Lynch, Adams, Tlaib, Dean, Garcia of Texas,
Williams of Georgia; McHenry, Posey, Wagner, Williams of Texas,
Hill, Zeldin, Davidson, Budd, Gonzalez of Ohio, Rose, Steil,
Gooden, Timmons, and Norman.
Chairwoman Waters. The Financial Services Committee will
come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
Today's hearing is entitled, ``Boom and Bust: Inequality,
Homeownership, and the Long-Term Impacts of the Hot Housing
Market.''
I now recognize myself for 4 minutes to give an opening
statement.
As we celebrate National Homeownership Month, we must
recognize that homeownership is the primary driver of wealth
for most families in the United States. It is a source of
stability and opportunity for families who can leverage their
home equity to put their kids through college, to start a
business, and to support them in retirement. However, not
everyone has been able to realize the dream of homeownership,
and the pandemic housing boom has made these disparities worse.
In fact, while millions of people were able to take advantage
of historically-low interest rates to purchase homes or
refinance their mortgages, skyrocketing home prices and other
ongoing challenges made it harder for Millennials, Gen X, Gen
Z, people of color, and individuals without intergenerational
wealth to compete and access homeownership.
So while the Federal Reserve estimates that home equity
reached a record $27.8 trillion by early 2022, many qualified,
would-be homebuyers could not partake in this wealth-building
event. These trends threaten to further widen the already-wide
racial wealth and homeownership gaps. Nationwide, Black
borrowers are the only group to experience a decline in home
purchase lending among borrowers of color. For example, in my
City of Los Angeles, the Black homeownership rate was 34
percent in 2021, lower than it was in 1910.
After experiencing a substantial loss of wealth during the
post-2008 foreclosure crisis, households have continued to be
locked out of opportunities to build wealth. It is
unconscionable that despite historically-low interest rates,
this nation was still unable to ensure that historically-
underserved and excluded borrowers could make homeownership
gains. We have heard stories of Black homeowners being
disproportionately denied refinance loans through appraisal
bias and other kinds of discrimination, including reports that
Wells Fargo denied nearly 50 percent of Black refinance
applicants. We have heard stories of borrowers relying on
mortgage financing being outcompeted by all-cash buyers,
including Wall Street-backed investors and buyers.
In a hearing chaired by Mr. Green yesterday, this committee
heard about how the sales and conversions of homes into single-
family rentals have harmed tenants, would-be homebuyers, and
neighborhoods. Rising home prices are directly contributing to
inflation, accounting for 40 percent of the price hikes in the
last CPI score inflation numbers. And with recent interest rate
hikes, we can expect that for many, the dream of homeownership
will remain just that: a dream.
Congress must pass this committee's housing title of the
Build Back Better Act, legislation I drafted that would create
and preserve over one million homes. This $150-billion
investment would ensure the long-term health of our economy by
significantly increasing the supply of affordable housing,
thereby reducing housing costs and corresponding inflationary
pressures. Additionally, last week, committed Democrats passed
my Downpayment Toward Equity Act, to provide down payment and
lending assistance to first-time, first-generation homebuyers.
I thank our witnesses, and I yield back.
I now recognize the ranking member of the committee, the
gentleman from North Carolina, Mr. McHenry, for 4 minutes.
Mr. McHenry. Thank you, Madam Chairwoman. Just last week,
this committee marked up the Chair's Downpayment Toward Equity
Act, a massive $100-billion spending spree that would continue
fueling skyrocketing housing costs. It is this kind of
unchecked spending that is pushing the housing market from boom
to bust for the average American family. That is on top of 40-
year high inflation and skyrocketing consumer prices across-
the-board, which are outpacing wage gains. In fact, this is
clobbering household budgets. And if purchasing a home is still
within the realm of possibility, it will cost you double what
it did just last year, from 3 percent to 6 percent now for a
30-year fixed-rate mortgage.
So, let's break down that statistic. The median sales price
for a house so far this year, in 2022, is $428,700. With an FHA
minimum allowable down payment of 3.5 percent, excluding
closing costs and other fees, that means a first-time homebuyer
might have to finance as much as $413,700. At 6 percent
interest, you are looking at a monthly payment of $2,480. That
is up from $1,740 last year, which is a $740-a-month
difference, or roughly a month's worth of groceries for a
family of 4, and in addition, those groceries are more
expensive this year.
Potential homebuyers are being pushed out of the market
today. Instead of taking responsibility for this economic
wreckage, President Biden is blaming anyone and anything other
than his own policies. Earlier this month, he claimed there
was, ``zero evidence,'' that the $2.66 trillion in new spending
from his first 500 days in office had anything to do with
inflation, that his spending had nothing to do with inflation.
He even called that notion, ``bizarre.'' And if you ask me what
is bizarre here, it is the cognitive dissonance between the
Democrats' bad policies and their lack of accountability for
this economic dumpster fire they have unleashed.
We have been down this road before, and we know where it
inevitably leads. It starts with Democrats creating new
programs or pressuring the Government-Sponsored Enterprises
(GSEs) to make increasingly-risky loans for borrowers who can't
keep up with the artificial price spikes they have created. And
it ends with those families, many of them low-income and first-
time homebuyers, being hurt the most when the housing market
has a downturn, and taxpayers are left on the hook for tens of
billions of dollars.
It doesn't have to be this way. We need to get serious
about creating a sustainable housing finance system that can
withstand the pressures of a market downturn. We should focus
on ways to actually increase the supply of housing and create
stable prices. And we should restore proper oversight of our
housing finance regulators, like FHFA and FHA, both of which
have somehow gone more than 2 years without appearing before
this committee.
In fact, today's hearing would have been the perfect venue
to hear from FHFA Director Thompson. Ranking Member Hill and I
sent a letter last week urging the Chair to invite Director
Thompson to testify on growing threats to our housing finance
system. It is those threats on which we should be focused.
Instead, all we are getting today is more excuses, more pleas
for new reckless government housing spending, and more empty
promises, and promises that this time, it will be different.
I yield back.
Chairwoman Waters. Thank you very much. I now recognize the
Chair of our Housing, Community Development, and Insurance
Subcommittee, the gentleman from Missouri, Mr. Cleaver, for 1
minute.
Mr. Cleaver. Thank you, Madam Chairwoman. Homeownership is
the single largest source of wealth for the American family.
Homeownership promotes wealth-building by both acting as a
forced saving mechanism and by allowing families to benefit
from the appreciation of their home value. Americans who own
their homes have gained more than $6 trillion in housing wealth
over the past 2 years.
There are some Americans and institutional investors who
have a remarkably positive story to tell about the housing boom
during the pandemic. For other Americans and American
communities, we are witnessing a gargantuan loss of wealth,
which will leave a permanent impact on this nation. These
Americans have lost their homes. They have seen the rising cost
of housing eat away at their incomes, and they have been
delayed or they have been shut out of the opportunity to build
meaningful wealth in this nation. The impact of this troubling
landscape will be substantial, particularly in communities of
color.
I appreciate this hearing, Madam Chairwoman, and your
razor-like focus on housing opportunities. Thank you, and I
yield back.
Chairwoman Waters. Thank you very much. I now recognize the
ranking member of our Housing, Community Development, and
Insurance Subcommittee, the gentleman from Arkansas, Mr. Hill,
for 1 minute.
Mr. Hill. Thank you, Madam Chairwoman. Thank you for
holding today's hearing. I know every Member of Congress shares
the common view that we face a serious housing affordability
challenge across our country, even though we may disagree on
the best ways to address it.
Madam Chairwoman, do you remember the famous politician in
New York, Jimmy McMillan? You might know him as the Rent Is Too
Damn High Party guy from the governor of New York race back in
2010. Back then, a lot of people thought that campaign was a
joke, but when the average home being sold this year is over a
half-million dollars, and last year, 146 cities in the United
States hit the mark where a typical house cost a million
dollars, people aren't laughing anymore. I look forward to
hearing from today's witnesses about supply-side solutions to
our nation's affordability challenges, their outlook for the
housing market amid these turbulent economic conditions, and
the Biden inflation.
With that, Madam Chairwoman, I thank the Chair, and I yield
back.
Chairwoman Waters. Thank you very much, Mr. Hill.
I want to welcome today's distinguished witnesses to the
committee: Mr. Michael Calhoun, the president of the Center for
Responsible Lending; Dr. Sameer Chandan, the director of the
Center for Real Estate Finance Research and professor of
finance at the NYU Stern School of Business; Dr. Jung Hyun
Choi, a senior research associate at the Housing Finance Policy
Center at the Urban Institute; Ms. Lydia Pope, the president of
the National Association of Real Estate Brokers; and Dr.
Norbert Michel, the vice president and director of the Center
for Monetary and Financial Alternatives at the Cato Institute.
You will each have 5 minutes to summarize your testimony.
You should be able to summarize your testimony in that time.
Also, you should be able to see a timer that will indicate how
much time you have left. I would ask you to be mindful of the
timer so that we can be respectful of everyone's time.
And without objection, your written statements will be made
a part of the record.
Mr. Calhoun, you are now recognized for 5 minutes to
present your oral testimony.
STATEMENT OF MICHAEL D. CALHOUN, PRESIDENT, THE CENTER FOR
RESPONSIBLE LENDING
Mr. Calhoun. Thank you, Chairwoman Waters, Ranking Member
McHenry, and members of the committee for the opportunity to
testify on the critical housing issues impacting American
families. In my testimony today, I will first summarize the
impact and lessons of the COVID pandemic and its impact on
housing. Next, I will set out the current affordability and
supply challenges we face. And finally, I will discuss the
steps needed to make sure our housing system provides
affordable, sustainable housing in the upcoming years for
American families.
As we all remember, in 2020, COVID brought precipitous job
losses and a grinding halt of much of our economy. There were
prospects of double-digit foreclosures exceeding even those of
the Great Recession, along with mass renter evictions and
landlord insolvency. However, the comprehensive response of
Congress and Federal agencies was extraordinarily effective in
preventing those calamities. Mortgage forbearance, with
payments deferred to the end of the loan, maintained a strong
housing market with low foreclosure rates and homeowners with
sustainable mortgages. Likewise, the threatened wave of
evictions of families who rent was largely averted through
rental assistance that also sustained landlords. The overall
economy recovered quickly, with a return to low unemployment,
due to these interventions.
That said, we are all aware that today we face formidable
challenges. Recent increases in house prices and interest rates
combined to quickly produce a doubling of the monthly mortgage
payment needed to buy a house. Rents have also escalated. As
shown in the chart of my testimony setting out the history of
housing booms and corrections in America, it will likely take a
number of years for housing prices to normalize, usually
through a flattening of house increases. Also, future
stabilized interest rates will likely be higher than the record
low rates of recent years. Combined, these will continue to
reduce housing affordability. Housing production has also
significantly trailed our needs for many years, and this
shortage is a huge obstacle to families securing an affordable
home.
Another continuing challenge is that the growth of
household wealth and home equity has been heavily skewed.
Today, the top 1 percent hold 30 percent of the overall wealth,
and the top 10 percent hold nearly 70 percent, while the lower
half of American households have a total of only 2.6 percent of
our nation's wealth. Housing gains have likewise been skewed,
including a massive homeownership and wealth gap that is
projected to continue to grow in the coming years. This gap is
reflected in the fact that today, Black college graduates have
less wealth and lower homeownership than White households that
did not complete high school.
In sum, there are pressing housing needs across the
country, rural and urban. This calls for us to reform our
housing policies and systems to better meet those needs with
the families today facing more volatility financially in
today's 21st Century economy, and many households not having
the personal or family wealth and the opportunities that
provides.
In my testimony, I detail a number of these specific policy
reforms. First, we have to finish the COVID work of helping
remaining families preserve their mortgages and their existing
rental housing. It is far more effective to maintain housing
security than to try to rebuild it.
Second, we must aggressively expand the housing supply,
working at all levels of government and with multiple
strategies. Next, with two 100-year crises hitting us in just a
dozen years, we must harden our systems to withstand future
systemic shocks. Equally important, the cost of addressing
those shocks should be a collective burden and not placed on
the most-vulnerable families.
In addition, we need well-structured supports that help
families sustain the more frequent financial volatility
occurring now. This includes deferral mods like we saw in the
pandemic crisis, along with new programs, like reserve funds
and loss of income insurance programs. These efficient systems
both help individual families, and they de-risk, lower the risk
of our overall markets and institutions. .
Finally, we must recognize the scope of historic and
ongoing discrimination documented in our housing market and the
massive wealth and homeownership gap it has produced. Our
future must include a commitment to the necessary effort and
resources required to rectify this and provide housing security
across the country for American families.
Thank you, and I look forward to your questions.
[The prepared statement of Mr. Calhoun can be found on page
52 of the appendix.]
Chairwoman Waters. Thank you. Next, we will go to Dr.
Chandan. You are now recognized for 5 minutes to present your
oral testimony.
STATEMENT OF SAMEER CHANDAN, DIRECTOR OF THE CENTER FOR REAL
ESTATE FINANCE RESEARCH AND PROFESSOR OF FINANCE, NYU STERN
SCHOOL OF BUSINESS
Mr. Chandan. Chairwoman Waters, Ranking Member McHenry, and
distinguished members of the committee, thank you for the
invitation to testify on the critically-important issues of
current housing market trends, the current housing market's
historic decline in affordability, and policy options for
supporting equitable access to homeownership.
My name is Sam Chandan. I am a professor of finance and
director at the Center for Real Estate Finance Research at New
York University's Stern School of Business.
Home prices in the United States reached their last nadir
in 2012 and have been rising rapidly in the decades since.
Appreciation accelerated within months of the pandemic's taking
hold, with home prices increasing at the fastest pace on record
over the last 2 years. Today, the median price for existing
homes stands above $400,000 for the first time. The 2020
inflection owes in large part to a shift in the location
preferences of relatively mobile and affluent households
favoring larger homes and lower-density neighborhoods, and to
other factors, including demographic trends, low-cost
financing, pandemic supplements to household income, and house
price expectations. On their own, these demand drivers would
not generate extraordinary house price increases. Rather,
demand has coincided with the national housing supply shortage,
estimated at 3.8 million units by Freddie Mac, and as high as
6.8 million units by the National Association of REALTORS.
The supply shortage is especially severe for entry-level
homes. This is a long-term trend, and not exclusively a feature
of the current market. From approximately 40 percent in the
early 1980s, the share of entry-level construction is now just
7 percent of homes under construction in the United States.
Confounding longer-term supply and demand fundamentals,
mortgage rates have surged in recent months. The impact of
these increases has been immediate, resulting in historic
deterioration in measures of housing affordability. The
combined impact of higher prices and mortgage rates and limited
entry-level home construction is being felt disproportionately
by families of color, younger families, and income-constrained
families aspiring to homeownership. Today, these groups face
even higher barriers to the nation's most reliable vehicle for
generational wealth building, social and economic mobility, and
housing-related health outcomes.
Barriers to housing opportunity are wide-ranging and not
only related to a family's financial circumstances. Prevailing
models of credit scoring discrimination in the housing search
process, higher financing costs unrelated to creditworthiness,
and disparities in the labor market and health outcomes during
the pandemic are among the myriad headwinds. There are no
interventions that will immediately and completely close the
housing gap. Nonetheless, it is encouraging that in recent
months, major initiatives have been announced that ameliorate
the medium- and long-term outlook, including elements of the
Administration's Housing Supply Action Plan.
Fannie Mae and Freddie Mac's recently-announced equitable
housing finance plans seek to address many of the structural
drivers of persistent disparities, including new approaches to
the consideration of positive rental payment history. For the
plans to take important steps to improve access to financing,
the Enterprises are not tools to address supply shortfalls
directly. Whatever the mechanism, if the supply of affordable
and workforce housing is not expanded, initiatives that enhance
demand, however well-intentioned, will likely have the
unintended consequence of undermining affordability for the
very populations they are intended to support.
So even as construction numbers rise in response to market
forces, a multi-level approach to enhancing housing supply for
all will address building code and zoning issues at the local
level, supply shortfalls for construction materials and skilled
labor, which may well be exacerbated in the coming years by
infrastructure programs, improved access to financing for a
wider range of housing types, including modular housing and
smaller multifamily rental properties, and recognizing that
investment in housing equity is also an investment in public
health, with clear implications for both chronic and infectious
disease morbidity and mortality. Additional demand-side
policies might reduce local taxes and transaction costs of
buying and selling, removing a barrier to mobility as
households grow their families, thereby freeing up entry-level
homes.
As issues of supply loom large, the role of institutional
investment in the housing market and its influence on prices
has garnered increasing attention. Institutional buyers
repositioning homes for the rental market represent a
relatively new component of housing demand, responsive to
families seeking the benefits of residing in a single-family
home without the obligations or the benefits of outright
ownership. Following the financial crisis, institutional
investors likely had a small, but favorable, impact supporting
the stabilization of prices and housing occupancy in distressed
neighborhoods. But the data also shows higher rent increases
and rates of eviction facilitated by formal property
management.
The institutional investor share of the market has risen
since just prior to the pandemic, but still only accounts for
approximately 2.5 percent of home sales, according to Freddie
Mac. On balance, the available data suggests that institutional
investment and repositioning of homes for the rental market are
not currently material contributors to national housing supply
shortages.
Thank you again for the opportunity to testify. I look
forward to your questions.
[The prepared statement of Dr. Chandan can be found on page
62 of the appendix.]
Chairwoman Waters. Thank you very much. Dr. Choi, you are
now recognized for 5 minutes to present your oral testimony.
STATEMENT OF JUNG HYUN CHOI, SENIOR RESEARCH, THE URBAN
INSTITUTE
Ms. Choi. Chairwoman Waters, Ranking Member McHenry, and
members of the committee, thank you for the opportunity to
testify today. I would like to start by mentioning that what I
present today is based on my own views and should not be
attributed to the Urban Institute, its trustees, or funders.
Today, I will share some key data points that highlight the
racial disparities in homeownership that persisted prior to the
pandemic, how the pandemic has disproportionately impacted
households of color, and how the changes in the housing market
environment are now again making it more difficult for
households of color to access homeownership. Then, I will
mention two promising demand-side solutions that the Federal
Government could consider that can benefit households of color
in obtaining and sustaining homeownership.
First, I would like to emphasize that large, persistent
racial disparities in homeownership, one of the primary tools
of building wealth, existed before the COVID-19 pandemic. Just
before the pandemic, the Black homeownership rate was 30
percentage points lower than the White homeownership rate, the
Latino rate was about 24 percentage points lower, and the Asian
rate was about 12 percentage points lower. The racial
disparities exist even after controlling for income. Our
research finds that unless well-designed, intentional policies
and actions are developed and executed, the racial
homeownership gap, especially the Black/White gap, will remain
unchanged in the next 20 years.
Thanks to various efforts by the government to help
households stayed housed, including forbearance and emergency
rental assistance, we have observed that both foreclosure and
eviction rates fell below the pre-pandemic level. However, the
data shows that both Black and Latino homeowners and renters
were more likely to have missed their monthly housing payment
amidst the pandemic. Additionally, following the Great
Recession, and now again during the COVID-19 pandemic,
financial markets have tightened credit, restricting lending
and making it difficult for households with less than perfect
credit to buy homes. Credit history is the most cited reason
for mortgage denial, having a disproportionate impact on Black
and Latino borrowers, who are more likely to have missing or
low FICO scores. Tighter lending standards and disparities in
credit scores mean that many Black and Latino renters who would
have been able to obtain a mortgage under prior credit
standards were more likely to face greater difficulties in
accessing homeownership. As a result, these households missed
an opportunity to build wealth from the rising home prices and
to benefit from the historically-low interest rates in the past
couple of years.
Amidst the pandemic, both the home prices and rents have
risen significantly. National home prices are now up more than
15 percent from a year ago, and rents have increased by more
than 11 percent. The 30-year fixed-rate mortgage rate is now
around 6 percent, more than double the average rate last year.
The limited housing supply has led to increased competition in
the market. The share of cash buyers in recent months accounts
for more than a third of all home purchases. Homebuyers of
color are more likely to purchase through FHA loans, but it has
become more difficult for those using the FHA channel to
compete with those with greater financial resources.
Additionally, because of the spike in rental prices, those who
remain renters will face greater difficulty saving up for
future down payments.
While multiple strategies are needed to bridge the racial
homeownership gap, including the increase in affordable housing
supply, here I will mention two promising demand-side solutions
that the Federal Government could consider. First, a better-
targeted down payment assistance program. Our research finds
that prioritizing first-generation homebuyers can serve a
greater share of households of color. For example, if we
increase the income limits to 120 percent of area median
income, and provide assistance to renters with parents who also
rent, the share of potential Black and Latino households that
the down payment assistance program could serve is about 60
percent, compared to 46 percent of Black and Latino households
under the 80-percent AMI criteria.
The second is to incorporate rental payments into mortgage
underwriting. Our research finds that past housing payment is a
better predictor of future mortgage performance than credit
scores. The GSEs have started to explore ways to include rental
payment history in mortgage underwriting. While the GSEs are
moving in the right direction, much more work is needed, such
as incentivizing more landlords to report rental payment data
to credit bureaus, standardizing the data, expanding the use of
rental payments for underwriting at Fannie Mae and introducing
it at Freddie Mac, FHA, and VA, and also providing guidelines
to lenders on how to use this data in the mortgage underwriting
process.
Again, thank you for the opportunity to share my research
with you today.
[The prepared statement of Dr. Choi can be found on page 75
of the appendix.]
Chairwoman Waters. Thank you very much. Next, we will go to
Ms. Pope. You are now recognized for 5 minutes to present your
oral testimony.
STATEMENT OF LYDIA POPE, PRESIDENT, NATIONAL ASSOCIATION OF
REAL ESTATE BROKERS (NAREB)
Ms. Pope. Thank you. Honorable Chairwoman Waters, Ranking
Member McHenry, and members of the committee, thank you for the
opportunity to speak to you today on the subject of
homeownership, especially among Black Americans. My name is
Lydia Pope. I am the president of the National Association of
Real Estate Brokers, known as NAREB. We are the largest and the
oldest Black real estate trade association in America, and we
are referred to as ``REALTISTs.'' Founded in 1947, with the
mission of democracy in housing, NAREB was founded during a
time of discriminative housing and lending policies that made
it difficult for Blacks to own homes, and many of these
policies still exist today. NAREB members, through its 94
chapters across America, are on the front lines of the Black
communities, creating housing opportunities, advocating for
fair practice, and promoting policies that remove barriers to
wealth creation.
Today, increasing interest rates in the home price market
are widening the wealth gap, delaying more and more Blacks from
participating in the American Dream. Today, Black homeownership
is nearly 30 percent behind White America, and lower than 50
years ago. COVID brought about some major shifts in the housing
market. Today, we see investor cash buyers dominating the
already-no-inventory market, who purchase these properties to
rent, raising the rental prices nationally.
Today, if you are a Black person in America and you want to
sell your home, you have to go through the, ``un-Black
process,'' in order to get a fair appraisal. Today, Blacks have
been targeted by low-level pricing, down payment limitations,
student loan qualifications, and outdated credit models
accounting for race in credit scoring and underwriting. And
today, there is a 1-percent increase in mortgage rates,
decreasing the Black buying power by 11 percent.
To this end, economic inequality has deepened, and the
homeownership rate has plummeted once again. Because of the
national crisis and the effects of Black homeownership, NAREB,
since 2013, has published annually what we call our, ``State of
Housing in Black America,'' (SHIBA) report, which has become
one of the most referenced and cited housing documents when
discussing Black homeownership, and it offers some sound
practical solutions. And NAREB went a step further. In February
2022, we wrote our first White Paper report on Women Investing
in Real Estate (W.I.R.E.), which provides data that impacts the
discriminatory practices against Black women.
To close the wealth gap, NAREB is offering the final and
following remedies that can impact and spur homeownership for
Black Americans today, tomorrow, and for generations to come.
First, we fully support and urge the passage of the Down
Payment Assistance Program that is part of the Build Back
Better bill. Many Blacks fall into this as first-generation
buyers and will greatly benefit from this fund. Second, NAREB
supports the standardization to student loan calculations.
Although government policies encourage student loan deferment,
they count it as a negative in the FICO scoring for mortgage
credit determination. This creates a large barrier to
homeownership for many Blacks who would otherwise qualify.
Third, NAREB calls for the elimination of loan-level
pricing adjustments in which lenders have been increasing the
cost of financing to borrowers who are creditworthy and meet
the program guidelines. Fourth, NAREB supports the Interagency
Task Force on Property Appraisal and Valuation Equity (PAVE),
and advocates for fair appraisals that understand diversity.
Training must be broadened within the Appraisal Institute, and
violations must be dealt with vigorously.
Fifth, NAREB supports low-balance mortgages and a secondary
market for Blacks to buy these affordable units in communities
that are predominantly minority. Sixth, NAREB supports the
Equitable Housing Finance Plan that includes a special purpose
credit program to address these inequalities in the housing
finance system and extend the wealth-building benefits of
homeownership.
And lastly, utilizing the services of a real estate
professional is still needed in the home-buying process. People
need consumer protection, experience, knowledge, and the human
touch to walk them through this already-difficult process.
And in closing, I would say that this is a tough time, and
we, NAREB, applaud the committee's efforts in this area. I am a
resident of Cleveland, Ohio, and my past experience as a single
Black woman with two children is why my mission and passion on
equality and equity is so important. I was a victim of
predatory lending, and I was that woman taken advantage of in
the real estate market because no one held my hand to buy a
home. My solution: To get a real estate license and stand
before you as a national president to make the difference.
I implore the committees, the legislators, the
administrative officials, the GSEs, the housing regulators, and
the directors to join NAREB in promoting and assuring democracy
in housing. Thank you.
[The prepared statement of Ms. Pope can be found on page
103 of the appendix.]
Chairwoman Waters. Thank you very much.
Mr. Michel, you are now recognized for 5 minutes to present
your oral testimony.
STATEMENT OF NORBERT J. MICHEL, VICE PRESIDENT AND DIRECTOR OF
THE CENTER FOR MONETARY AND FINANCIAL ALTERNATIVES, THE CATO
INSTITUTE
Mr. Michel. Good afternoon. Chairwoman Waters, Ranking
Member McHenry, and members of the committee, thank you for the
opportunity to testify today. My name is Norbert Michel, and I
am the vice president and director of the Center for Monetary
and Financial Alternatives at the Cato Institute. The views
that I express today are my own and should not be construed as
representing any official position of the Cato Institute.
Today, I argue that the best way for the Federal Government
to make housing more affordable is to reverse course on Federal
policies that increase demand. It is true that home equity
frequently represents a large portion of many Americans'
wealth, but it does not follow that Federal policy should
promote housing debt. In fact, home equity depends largely on
home price appreciation, an attribute fundamentally in conflict
with more affordable housing. Federal policies undoubtedly make
housing as well as other goods and services less affordable,
and they do so because they artificially boost demand in
supply-constrained markets. And from 2012 to 2021, home price
growth rate was nearly double the income growth rate.
There are at least three glaring problems with these recent
Federal policies. First, the level of Federal involvement in
housing has been escalating for decades. Along with housing
cost, that correlation is no accident. Combined, Fannie and
Freddie have stood behind more than half of outstanding
mortgage debt for decades, and in some years, were responsible
for a share of close to 70 percent. From 2009 to 2020, Fannie
and Freddie's annual share of the total mortgage-backed
security (MBS) market averaged 70 percent. If we include Ginnie
Mae securities, the Federal share of the MBS market averaged 92
percent per year over this period.
Virtually all Federal housing policies, even those outside
the GSEs and FHA, are geared toward increasing demand. But
because housing markets are almost always supply-constrained,
these policies consistently put upward pressure on prices and
rents. These policies include everything from supporting the
GSEs to providing housing allowances to military and other
government employees, as well as basic Section 8 vouchers. The
economic principles are the same. They place upward pressure on
prices because they increase the number of dollars chasing the
same amount of housing, and there is surely some spillover to
related markets.
Second, wasteful spending since 2020 has only worsened the
effects of these demand-inducing housing policies. Congress
passed five massive spending bills starting in November of
2021, totaling $7.5 trillion. This spending spree worsened
inflation and exacerbated both labor market problems and
pandemic-related supply chain problems, thus leading to the
abnormally high increases in the CPI that Americans continue to
experience.
Total spending, the demand-side measures bounced back
sharply starting in the second quarter of 2020 and kept rising
through the third quarter of 2021. Starting with April of 2021,
virtually every monthly CPI report has indicated some form of
abnormally high inflation. In May, the year-over-year CPI rose
at an annual rate of 8.6 percent. The largest 12-month increase
since 1981 was a broad-based increase, with prices for shelter,
gas, and food being the largest contributors. Yet, Congress and
the Administration seemed content with that failed approach of
increased Federal spending. The problem is that Federal
spending, whether it is on a museum, Section 8, or
infrastructure, boosts demand while doing nothing to address
supply constraints. That leads to more inflation while doing
nothing to address the underlying issues that created the
inflation in the first place.
Finally, the Federal Reserve has contributed to higher
housing costs by continuing to support the MBS market and,
therefore, fueling more leverage to buy homes in a low-
interest-rate environment. Prior to the 2008 crisis, the Fed
rarely held any MBS on its balance sheet, but now it acts as
though it can operate without holding massive quantities of
GSE-issued mortgage-backed securities. Between 2010 and 2022,
the lowest amount held was $827 billion, and the Fed went from
holding $1.4 trillion in 2020 to $2.7 trillion in 2022. In the
face of a rapidly-rising CPI and steadily rising home prices,
this MBS purchase policy makes very little sense.
Thank you for your consideration, and I will be happy to
answer any questions you may have.
[The prepared statement of Dr. Michel can be found on page
86 of the appendix.]
Chairwoman Waters. Thank you very much. I now recognize
myself for 5 minutes for questions.
Ms. Pope, first of all, I want to thank you for being here
and the work that the REALTISTs have been doing ever since I
have been elected to office to deal with discrimination and
other issues dealing with homeownership. During the pandemic,
increased competition for homes in a tight housing market
pushed homeownership further out of reach for many prospective
first-time buyers, people of color, and low-wealth individuals.
A recent study by the National Association of Real Estate
Brokers showed that in 2021, the ratio of the homeownership gap
grew to over 30 percent, higher than it was in 1960.
In my City of Los Angeles, the Black homeownership rate was
34 percent in 2021, lower than it was in 1910. Last week, our
Democratic committee passed my Downpayment Toward Equity Act.
My bill would authorize $100 billion for a new grant program to
provide assistance of up to 10 percent of the purchase price of
a home to first-time, first-generation homebuyers to cover down
payments, closing costs, and to help buy down interest rates.
What do you see as the potential impacts of such a program?
Ms. Pope. Thank you, Chairwoman Waters. This would have a
great impact in the Black community, especially knowing that
down payment is one of the largest factors of not just the
systemic racism that we have encountered around the country
over the years, but this will be a big help when it comes to
generational wealth. That is a very good opportunity for Black
Americans to take advantage of, and again, allow the creation
of the generational wealth to continue. And it will help
remediate the actions of the inequalities, the wealth gap, and
the discriminatory practices. This will be a great help to
Black American families.
Chairwoman Waters. Thank you very much. Even though I had
not planned on asking this question, I am very interested in
knowing what is happening with the evaluation of homes in the
Black community, and what is happening with the way that the
discrimination appears to have been taking place for so many
years.
Ms. Pope. As you know, around the country, all of the
values have diminished. They have lowered the values because of
the appraisals, and at NAREB, we are working very closely with
our affiliates as well, and we are supporting the PAVE Act in
order to stop the discrimination of the appraisals and the
biases. We are hoping that we will have more training of the
appraisers and more licensed appraisers to be able to do what
they need to do in order to bring the economy back and to allow
our Black homeowners to be able to sell their properties and to
buy properties not at those low values. We are taking the stand
in supporting the PAVE.
Chairwoman Waters. Thank you so very much. Professor
Chandan, house prices have skyrocketed during the pandemic,
appreciating nationally by nearly 20 percent between 2021 and
2022, making homeownership that much more unaffordable. In
fact, according to the California Association of REALTORS, only
25 percent of Californians could afford to purchase a medium-
priced home in the first quarter of 2022, compared to 47
percent of homebuyers nationally. One driver of this
affordability crisis is the worsening housing supply shortage.
Last year, the House passed the Build Back Better Act, which
included over $150 billion in investments that would create and
preserve over 1.3 million homes, including by offering
incentives to local jurisdictions to ease burdens to buying and
building new housing.
Can you talk about the importance of making the types of
transformative housing and community development investments
included in the Build Back Better Act?
Mr. Chandan. Thank you, Chairwoman Waters. I think what we
do see, as you have alluded to, is that we have a significant
challenge in terms of the supply and availability of new homes.
That number has risen significantly over the course of the last
year-and-a-half or so, and we have a substantial pipeline of
homes under construction. But to your point, when we look at
the mix of what is being built in the United States today, in
part because of local zoning requirements, building codes,
restrictions on the availability of land, and the cost of
materials, only a very, very small share of those homes are
within reach of income-constrained families and many
aspirational homebuyers.
And programs that not only encourage supply, but encourage
supply that is specifically directed towards income-constrained
families and those who are aspiring to homeownership will be
most effective in alleviating some of the supply challenges and
pricing issues that we face.
Chairwoman Waters. Thank you very much. Mr. McHenry, the
gentleman from North Carolina, who is the ranking member of the
committee, is now recognized for 5 minutes.
Mr. McHenry. Thank you, Madam Chairwoman. Mr. Michel, I
want to drill a little bit deeper into today's hearing title.
It is called, ``Boom and Bust,'' and, look, as I outlined in my
opening statement, in President Biden's first 500 days in
office, he increased Federal spending by more than $2.5
trillion. Our national debt now surpasses $30 trillion. The
massive spending spree includes nearly $2 trillion in the so-
called American Rescue Plan, the $256-billion Infrastructure
Investment and Jobs Act enacted last year.
It doesn't include the $1.7-trillion so-called Build Back
Better Act--or whatever they are calling it right now; it keeps
changing week every week--which passed the House in November,
and it was then called Build Back Better. It also does include
a trio of housing bills that the Chair has introduced but that
have not passed the House. That includes $600 billion in
housing infrastructure, or the unscored Ending Homelessness Act
that is likely to cost nearly $200 billion a year, and her
$100-billion Downpayment Toward Equity Act. Those are nearly a
trillion dollars in new spending, all from borrowed money.
If you would, please explain both the observed and
projected effects that this massive spending is having on the
economy, and the connection to the record inflation Americans
are experiencing.
Mr. Michel. Sure. The stimulus was more than triple--
depending on exactly how you cut it--the gap between actual
output in the economy and what we estimate as the potential
output of the economy. Even before March of 2022, the $1.5-
trillion spending package that we had back then, Federal
spending, had increased people's quarterly disposable income,
even on a per capita basis, by incredibly abnormal rates,
things like 14 percent in the first quarter of 2021. That is
well over the average quarterly increase, which is less than 1
percent during the last decade.
So, there is pretty much no way that sort of spending won't
eventually lead to inflation. The result that we have now is
really not all that surprising. It is just an enormous amount
of money relative to what people are used to having on the
whole. And this is worse, of course, for anyone on a fixed
income or without a steady, secure, or indexed-to-inflation
source of long-term income because they are not getting that
money directly or indirectly at first. They are getting the
price increases first, in many cases.
And then, in many cases, when they have already gotten some
of the income, they are still getting an even larger price
increase. Again, that is due to the magnitude, so this is bad
for millions of people. And I think it is probably obvious to
most people that the lower your income and the more volatile
your income, the worse your situation, the harder this is going
to be to deal with. That is kind of where I would go with that.
Mr. McHenry. We know that Federal spending comes in a lot
of forms, but one of the worst is when we come up with new
giveaway subsidies for people who probably don't need it and
shouldn't get it. One good example is a provision in that Build
Back Better bill that the House passed in November, and we
marked up that same provision again last week. This provision
would create a new first-generation down payment fund to give
down payment grants up to $20,000, or 10 percent of the
purchase price of a home. Individuals making up to 140 percent
of the median income of the area would be eligible to get these
grants if they didn't own a home in the last 3 years and the
parents currently didn't own a home. This means an individual
in Marin County in California making up to $232,000 could
qualify for more than $97,000 in free government money on a
$970,000 home, even if they had owned the same size home 1,000
days earlier. As an economist, what does a subsidy like that do
to the marketplace? How do you respond to such an irrational
demand-side subsidy, when no subsidy is even required in the
first place?
Mr. Michel. Yes, this makes no sense at all. It is a
terrible policy. The response will be even higher home prices.
It is only a question of how long it will take and how much
upward pressure you are going to get very soon. I would expect
sellers to know that the first $100,000 or so is taken care of,
so you can charge more. It is similar to the effect that
dropping the interest rate has on a monthly payment. It is
going to get capitalized into the price of the home, so if you
do that, you are going to get price inflation in the home and/
or price increases in the homes. And if that $100 billion or
that program doesn't get renewed, you would expect prices to
flatten out and eventually drop. And then, anyone coming into
the market late or with lower equity, who is already in, is at
a very high risk for being underwater. So, it makes no sense at
all in any way.
Chairwoman Waters. Thank you very much. The gentleman from
California, Mr. Sherman, who is also the Chair of our
Subcommittee on Investor Protection, Entrepreneurship, and
Capital Markets, is now recognized for 5 minutes.
Mr. Sherman. Thank you. A few comments first. It is
interesting. We are all in favor of appreciation. We are all in
favor of affordability. Those are contradictory. There is an
irony there, but there are reasons for us to support both. Our
committee naturally focuses on financing of housing, but we
have to look at other governmental entities and what they are
doing to the affordability of housing. Our friends over at the
House Ways and Means Committee have taken away the deduction
for property taxes for an awful lot of taxpayers, and they have
not indexed that provision for inflation. So whether it is 2-
percent inflation, or whether it is a much higher level of
inflation, that provision hurts not only the upper-middle
class, but will soon hit the middle-middle class. The same
applies to their limitation on home mortgage deductions. While
we are making housing more available, they are making housing
more costly.
But the biggest impact is local government. The, ``Not in
My Backyard'' (NIMBYs) really control housing, and in so many
areas, people want either open space or maybe open space dotted
by a few rich houses. The effect is that the cost of providing
a new structure--and we need at least 5 million more of them--
is double or triple what it would be. The physical cost of
building the home isn't the cost. The cost is dealing with the
zoning, the resulting increase in land prices, the fees, and
all of the requirements that are often designed to make sure
that communities are not economically integrated, and, of
course, that means, in many cases, not racially integrated.
I realize we are focused on homeownership. Not everyone
should buy a home. If you are not going to live there, or you
are not sure you are going to live there for at least 6 years,
it is not in your interest usually to buy a home, and there
ought to be single-family homes that are available for rent. I
believe one witness said 2.5 percent of the homes are owned by
institutions that rent them out, and that seems reasonable. We
have a labor market where people are willing to move around far
more than they are in Europe, and that gives us an economic
advantage. Our witness from the Cato Institute points out that
government spending increases demand and inflation. What he did
not point out is that taxes reduce demand and reduce inflation,
and that is why Build Back Better was fully paid for, and why,
if we can tax the wealthy appropriately, we can reduce
inflation.
Mr. Calhoun, we often hear that FHA borrowers struggle to
compete against those who are borrowing with a conventional
mortgage. This is explained because sellers want to avoid the
longer closing times, and the tougher appraisal requirements.
Last year, the House passed my bill--unfortunately, we did not
have a unicameral legislature, so it died in the Senate--the
Homebuyer Assistance Act, which broadens the types of
appraisers that can appraise for an FHA purchase to be the same
as those that can do the appraisals for the GSEs. This is
significant because FHA borrowers are overwhelmingly first-time
homebuyers and disproportionately people of color. Are there
other policies that we can take, whether it is the appraisal
requirements or elsewhere, so that FHA borrowers are on equal
footing when they go to buy a house?
Mr. Calhoun. Yes, Congressman, if I can first add one
comment to your last comment, I think it is important. Included
in my testimony is a chart that I will just show you here on
the history of housing prices. The colored parts are--
Mr. Sherman. I will ask you to focus on the question. We
have 40 seconds.
Mr. Calhoun. Okay. Yes, sir. Thanks. The current
requirements for certified appraisers makes it much harder to
find an appraiser, and creates more delays. That is one of the
most important things. FHA is doing a number of other things,
such as increasing their technological services so they move
faster. And right now, they have several proposals that provide
more clarity for lenders to make it easier for borrowers to
qualify and to encourage lenders to participate in the FHA
program. As you know, FHA is the largest provider of new home
purchases for borrowers currently.
Mr. Sherman. I just want to point out how important it is
to pass the chairwoman's Downpayment Assistance Program. Half
of the Millennial homebuyers needed family to help them, and
not everybody has a rich uncle or a helpful parent. I yield
back.
Chairwoman Waters. Thank you very much. The gentlewoman
from Missouri, Mrs. Wagner, is now recognized for 5 minutes.
Mrs. Wagner. Thank you, Madam Chairwoman. Today marks the
20th housing hearing this committee has held in the 117th
Congress, and yet it seems we are not any closer to bringing
down the high cost of housing. Over the course of 20 hearings,
instead of addressing the lack of production of new housing
units, the Majority has spread blame on property owners,
investors, appraisal firms, and the mortgage industry, more of
the Biden blame game. Meanwhile, the Biden Administration, and
Democrats, and Congress have recklessly spent trillions in
taxpayer money that has worsened inflation, crippled supply
chain and construction markets, and, ultimately, made housing
even less affordable.
Dr. Michel, I represent the 2nd Congressional District of
Missouri, which continues to experience labor shortages and
supply chain issues that affect almost every industry from
construction to manufacturing. Collectively, do the policies
offered today by the Majority and the Biden Administration
address those issues?
Mr. Michel. No, no, it would worsen it. This is the idea. I
am sure it is well-intentioned. You want to help people.
Everybody wants to help other people, and that is good, but the
fact remains that if you go down this road of just giving out
more money, it still takes a long time to build a house. You
can't build a house in every single location where people want
to live. There is not enough land. You don't have enough
laborers to do everything that you want to do. You have an
infrastructure package that is going to draw laborers to that.
So, you are going to be throwing more money, allowing people to
bid up the same amount of resources over a short period of
time, and that is the opposite of what you want to do if you
want to make things more affordable and easier to obtain.
Mrs. Wagner. Could you describe how the supply chain issues
we are facing will continue to drive up home prices and rental
rates if left unaddressed?
Mr. Michel. It would be the same sort of situation where
you don't have enough of what you want, and you don't have a
way to get everything quickly. If you talk about things like
livestock or labor, you can't magically produce them, no matter
how much you want to bid up the price. Letting these things go,
letting these supply and demand forces sort of take hold
without further subsidizing them is the only way to let those
prices come back down, to let the market reallocate on its own
pace rather than trying to just continue to increase the demand
side.
Mrs. Wagner. Yes. The Federal role in housing finance
policies has expanded greatly over the last several decades,
and yet the American homeownership rate remains at roughly the
same level as the 1960s. Dr. Michel, is there evidence that
would suggest the entrenched role of the Federal Government in
the housing market has played a role in its current state?
Mr. Michel. Yes, absolutely. It is kind of amazing to hear
lots of the other people on the panel suggesting that we just
continue doing the same things we have been doing that got us
into this mess in the first place. The only appreciable
increase in, for example, the Black or Latino homeownership
rate was prior to the last crisis, and that was not sustainable
by definition. We want to keep helping people. That is good.
That doesn't mean that you help people by giving them low-
equity, long-term fixed loans that they can't afford. And if
you have a volatile source of income, for example, you are not
addressing the underlying economic issues. You are just
throwing money at a problem, and you are putting somebody in a
financially risky category. So the fact that you take some of
that stimulus away or some of that subsidization away and then
it is not sustainable, it ends in a bust.
Mrs. Wagner. And, Dr. Michel, in my short time, I know your
testimony outlines many harmful housing policies that the
Democrats have been pushing in their Build Back Better growth
plan, or whatever you want to call it, while the list is quite
long. Could you briefly mention some of the most harmful
policies?
Mr. Michel. Outside of the GSEs, is that--
Mrs. Wagner. Yes.
Mr. Michel. I think if you look at the GSEs, that is the
biggest chunk of it for me, the GSEs and the FHA. This is no
longer a small program. This is the entire market, so it is
essentially a Federal takeover. And with those expansions, we
have seen this happen over and time again.
Mrs. Wagner. Yes, thank you. I yield back the balance of--
Chairwoman Waters. Thank you. And thank you so much, Mrs.
Wagner, for recognizing that we have made housing a priority,
with 20 hearings and no help from Republicans. Thank you very,
very much.
The gentleman from New York, Mr. Meeks, who is also the
Chair of the House Committee on Foreign Affairs, is now
recognized for 5 minutes.
Mr. Meeks. Thank you, Madam Chairwoman, and I just have to
adjust quickly, because I heard Representative Wagner and
Representative McHenry--they keep talking about, it seems to
me, that some of the housing crisis, particularly with regard
to Black America, predates all of what they are talking about.
But it also seems to me that when you help someone, give them a
handout, it is okay, but when you have the huge Republican tax
cuts that go to the wealthiest of Americans, that is much more
money than you see going to regular folks, that is okay.
And then to say that the President is not doing the right
things when, in fact, we know that we are coming out of the
greatest pandemic that this country has seen in over 100 years.
And yes, the war in Ukraine is affecting the economies, which
is why the President is at the G7 and at NATO now working
together with our allies who are also suffering from inflation
and suffering from Putin's war. There is no question about
that. And I would hope that my Republican colleagues who say
that they are supporting Ukraine, which we all should do, and
make sure that they get the money that they need to defend
themselves, but we should also support our people at home.
We had a conversation with Fed Chairman Powell, who said
that if we hadn't made the investments that we made during the
pandemic, our economy would not be as strong as it is right
now, which is stronger than many other places or most other
places around the world. I just had to get that in because, to
say that we are supporting Ukraine, but then say, oh, the
President is making it up, you can see the comparison just does
not make sense. So, if you are not going to support Ukraine,
then say you are not supporting Ukraine because that does cause
us to have higher gas prices and inflation in the United States
of America.
But my first question is to Ms. Pope. Ms. Pope, I know your
great organization has put out a report, and I think that the
chairwoman started talking about this earlier, about the state
of housing in Black America, which discusses other challenges
that are confronted by Black homeowners, including the home
appraisal practices where the loans are already more costly for
Black households, and on top of that, the Black homes tend to
appreciate less or be valued at a lower value. This whole thing
in regards to algorithms, can you explain what the role of
Automated Valuation Models (AVMs) are and what more needs to be
done to make sure that calculations and algorithms aren't
having inadvertent negative consequences, or what should we be
doing to make sure that we have equity there?
Ms. Pope. Thank you, Congressman Meeks. When it comes to
the Black neighborhoods and the appraisers, you are absolutely
correct. The housing market is diminishing. The appraisal
values are low, and then what are we doing not just as a
national association, but as America. It is important that when
we are dealing with the appraisers in the appraisal society,
that number one, 1 percent of the appraisal society are Black.
We don't have enough African Americans within the industry to
understand the values of our neighborhoods where we grew up,
that we know about, where we know the house across the street
is worth more value than what the appraiser has stated.
The importance of even the PAVE policy, the PAVE Act--to
discuss a lot of the challenges on the training that needs to
happen within the appraisal society, the licenses that needs to
take place. In addition to that, we need to make sure that we
hire and employ more Black appraisers so that they can have an
opportunity to lessen some of the guidelines for the appraisers
to be able to increase that community so that we are able to
have the true, in fact, real appraisers. When it comes to
systemic racism, the low access to capital, to healthcare, to
quality of food, the inequality and the racial discrimination
that has happened over 400 years, it hasn't changed. And as we
are seeing now, it is just being bought out, so it is so
important that we, as an organization and as America, need to
make a difference in the appraisal society, and we have to hire
and employ more Black appraisers.
Mr. Meeks. Thank you for that. And in my little time
remaining, I am going to go to Ms. Choi just to ask, what role
does the student loan debt play in serving as a barrier to
homeownership, and how can we address this issue here in
Congress? I put a bill out called the Making FHA Work for
Borrowers with Student Debt Act, and I know for me, coming out
of college with student loans prohibited me from owning a home
for a while. Can you address that, Ms. Choi?
Ms. Choi. Yes. Thank you for that question. I think this is
a very important topic. I think student loan debt has the same
issues with access to homeownership, because a lot of young
adults who have wealthy parents get access to education without
student debt, but we are seeing from the data a lot of young
Black adults having a higher student debt for the same level of
education. They are more likely to drop out of college because
they have multiple duties to serve, and even after they
graduate, they run into problems of being delinquent in that
home, and that is also having a negative impact on us, the
access to homeownership. I would love to look more into your
bill, but I think this is a very, very important issue to
address.
Mr. Meeks. Thank you very much. I am out of time. Thank
you, Madam Chairwoman. I yield back.
Chairwoman Waters. Mr. Posey, you are now recognized for 5
minutes.
Mr. Posey. Thank you, Chairwoman Waters. Mr. Michel, the
opening lines of the Majority policy paper for this hearing
suggests homeownership should be a policy tool for closing a
wealth gap in this country. Please tell us what economic
research suggests about making reduced wealth gap an objective
for homeownership policy?
Mr. Michel. I don't agree that homeownership itself should
be a policy. There are lots of reasons not to own a home. It is
an individual decision. And if we are talking about something
like sustainable homeownership, there are many economic
conditions and reasons that will make that either difficult or
easy. There is nothing wrong with renting. Federal policy
should not distinguish between both or between either renting
or owning.
Even though there is a correlation between things like,
say, good citizenship and homeownership, it doesn't mean that
one causes the other. There is actually lots of research that
shows negative spillover effects from owning, especially low-
equity, long-term low equity loans--negative spillovers like
hesitancy to move in search of a better job opportunity, just
to name one off the top of my head. Is that where you are
going? I am not sure if I am answering exactly what you are--
Mr. Posey. You are answering exactly--I just was looking
for some balance, and you provided that balance, so thank you
for being so straightforward.
Mr. Michel. Okay.
Mr. Posey. When Secretary Carson was at HUD, we had begun
to appreciate that making housing affordable depends a lot on
being able to expand new housing supply while holding the line
in the best way possible of building new housing. What happens
to housing prices and affordability when we expand housing
demand subsidies without addressing the conditions of housing
supply?
Mr. Michel. Prices go up, and as the prices go up through
either FHA or GSE loans that we have, we have more lower-equity
loans. So, you have sort of pockets geographically throughout
the United States that are either more or less constrained than
others, and then you basically have one Federal policy that
just says, give more loans, get more loans. So, it is not
surprising to get exactly the result that we have had, which is
more consumer debt and an incredibly rapid increase in home
prices.
Mr. Posey. What do you think Congress should do to help
bring down the cost of building new housing so that we can
expand supply to meet the growing demand without driving up
prices?
Mr. Michel. There is very little that Congress can do to
increase the supply, so what it has to do is concern itself
with demand relative to supply, and that, again, means paring
back on the increase in demand. Supply is going to be more
local-driven, and you have to back off, literally back off. You
have to shrink the footprint of all of the things that are
being done federally to increase demand. Otherwise, you are
going to keep getting higher prices.
Mr. Posey. One of the bills under consideration in this
hearing is the ability to provide $25,000, or even more, in
high-cost areas to provide qualifying assistance to certain
first-time, first-generation homebuyers in purchasing their
first home. Can you comment on the pros and cons of that
approach?
Mr. Michel. The pros of course are, if you are a recipient
of that, you get the money for your down payment, and that is
good for you, but the cons to that, again, are you are doing
nothing to change the underlying conditions. So if you have an
African American, for example, who doesn't have a rich uncle,
you are assuming that simply giving them the money would be
good for them. And again, while it might be good to be able to
purchase that home, you are actually not purchasing a home. You
are purchasing a mortgage.
And the research shows that what we what we get from
spillovers from homeownership, you could actually be picking up
the behaviors that somebody has or builds over time when they
do save money. You are taking the saving the money part out of
the equation. You are saying that doesn't matter when, in fact,
the research shows that part could matter more. And that is not
to say that there shouldn't be something done to increase
economic opportunity, but there is a difference between that
and just giving somebody the check.
Mr. Posey. Okay. Listen, for the record, Madam Chairwoman,
I have been a REALTOR for well over 40 years, and I can assure
you that during the entire time, since the very beginning, the
first orientation class, every REALTOR is aware that there
should not be any discrimination in housing whatsoever, and the
only color any REALTOR should be concerned with is green, and
that is putting the deal together. Thank you. I yield back.
Chairwoman Waters. Thank you very much. The gentleman from
Georgia, Mr. Scott, who is also the Chair of the House
Committee on Agriculture, is now recognized for 5 minutes.
Mr. Scott. Thank you, Madam Chairwoman. Ms. Pope, let me
direct this question to you. A recent study pointed out that 33
percent of home sales in my area were made by private
investment groups. And my area in Atlanta led the nation as the
number-one metropolitan area in the entire nation for investor
purchases of single-family homes. Ms. Pope, can you explain how
this investor activity in this subset of housing markets
impacts individual buyers and hurts us?
Ms. Pope. Thank you. Thank you, Congressman Scott. First of
all, when lenders hesitate in a low-balance mortgage in an
area, buyers can't purchase, so when they can't purchase, a lot
of times it opens the doors for investors who pay cash. Also,
these cash investors do them in bulk, so the more properties
for less money, it is a wholesale. What happens in this case is
it displaces the residents. It would create low inventory, and
it definitely creates low inventory for the neighborhood. But
what ends up happening is you have a high rental market that
makes it not sustainable for the homeownership and it makes it
difficult for anyone looking to buy a property, it is hard to
buy because all of the properties have been taken up by these
types of investors who are buying and paying in cash. Our
typical homebuyer doesn't have the cash. They just don't have
it. That is why financing is available. To strip that away from
the American Dream is chasing them away from that
homeownership.
Mr. Scott. Yes. And to your point, the Atlanta Journal-
Constitution, our home newspaper, reported that this large
investor buying activity was linked to a drastic decline in
homeownership rates. And as is the case in so many situations,
this connection disappeared when comparing predominantly White
neighborhoods with predominantly Black neighborhoods. Ms. Pope,
explain that for me?
Ms. Pope. And I hope I am explaining this correctly. When
an investor buys a single property and they are going rent it
or fix it up to sell, then that market is increased. It makes
the inventory low, first of all, because that borrower can't
purchase it at prime price. Now, it has excelled because that
investor fixed the property up, resold it, and flipped it. That
makes it very difficult in a community because then it becomes
unaffordable and possibly having challenges with the
appraisals, and that is what we are finding across-the-board. I
am from Ohio, and we have the same issues of having all of
these investors buying in neighborhoods, increasing the sales
price, or renting. Everything is escalated higher, and that
makes it harder for a Black person or anyone to buy a home in
that area because of the appraisal values or because they can't
afford it now. It is not the typical, average, regular price.
Mr. Scott. And let me get to the genesis of the issue from
my standpoint. How are these firms able to track what
neighborhoods and areas will see, future high-paying jobs and
good-performing schools, which tend to increase home prices?
Ms. Pope. When an investor buys a property, it strips away
the homeownership. So you are right, the homebuyers--the school
systems that they go to, the grocery stores they go to, the
banks that are very little in the neighborhood becomes a
challenge because now you are taking away that homeownership,
that neighborhood that is created to have sustainability. So,
they are stripped away when you are lessening the housing
market and increasing the rental market.
Mr. Scott. My time is running out, but here is the bottom
line I want you to answer. Is it fair to say that these private
equity firms would then target single-family homes in majority
African-American neighborhoods more than in majority White
neighborhoods?
Ms. Pope. Yes.
Mr. Scott. Thank you very much. I yield back, Madam
Chairwoman.
Chairwoman Waters. Thank you very much. The gentleman from
Texas, Mr. Williams, is now recognized for 5 minutes.
Mr. Williams of Texas. Thank you, Madam Chairwoman. And for
full disclosure to everybody on the call today, I am a small
business owner, and I am an investor. As we are having these
conversations, some of these questions I hear coming out of the
left field about the housing market, we should take a second to
recognize where the Biden economy currently stands, and it
stands with everybody, not just one group or two groups.
Everybody is being affected by the bad decisions coming out of
this Biden Administration. The American savings rate is at its
lowest level since the Great Recession, and while credit card
debt is hitting all-time highs, supply chains are broken,
having visible impact when our constituents go to the grocery
store with empty shelves, but also on inventories for other
small businesses. I am in the car business. I just said that I
am a small business owner, in the car business. And we usually
carry around 800 units on the ground, and today, as I sit here,
in one of my businesses, we only have 26 units on the lot for
sale, so I can tell you about supply chain problems.
The supply chain problems are making it particularly
difficult for commercial and residential real estate
industries. Projects are being delayed because they can't find
the raw materials necessary to complete their builds. And when
timelines get stretched out because of unforeseen circumstances
and inflation, the overall cost goes up. Even if these builders
are able to secure all of the necessary materials, they are
having real problems in finding skilled workers to complete
these new projects. And inflation is at a 40-year high as a
result of out-of-control government spending by the Biden
Administration and to accommodative monetary policy. This has
forced the Federal Reserve to raise interest rates at an
unprecedented pace to get these unprecedented price increases
under control, and this has led to the 30-year fixed-rate
mortgage rise into a 14-year high this week of almost 6
percent.
To give it perspective, a year ago this mortgage rate was
sitting at 3 percent. This is a massive year-over-year increase
coupled with home prices hitting all-time highs and are not
making this a buyer-friendly environment for anyone. And as a
result of all of these factors, consumer confidence is
currently sitting at its lower level since the start of the
COVID pandemic. The Biden economy just simply is not working,
so needless to say, we have a long way to go before Americans
are confident again in the direction our economy is heading.
Mr. Michel, can you give us your opinion on how we got to
this point, and then what steps we need to take to get our
economy back on solid ground?
Mr. Michel. Part of it again, I think on the inflation side
is the fiscal spending. Part of the supply chain issues, or
largely the supply chain issues are due to the COVID government
shutdowns. You had an incredibly large drop in demand and then
a snap back in demand, bigger than anything in the historical
record, so we have to be a little bit patient. We also have to
stop spending more at the Federal level. It is only
exacerbating supply chain problems. We only have so many
resources to go around. You don't want to keep bidding them up.
And on the other side, I think the Fed is actually doing
what they should be doing. The Fed has started tightening. At
this point, monetary policy is probably the only tool that is
going to help long term, and there are signs that it is
starting to work. Credit markets are tightening, money growth
is coming down, and there are signs of core inflation kind of
turning back. So, I think we are on the right road as far as
that goes.
Mr. Williams of Texas. And we need to quit talking about
tax increases. We need to keep taxes where they are and--
Mr. Michel. Yes. I don't really understand the tax increase
thing, but go ahead.
Mr. Williams of Texas. Yes, I don't understand it either,
but we will move on to that later. Excessive regulations are
important. They could be a major drag, as you know, on the
economy and private sector participants. And there have been
studies that have shown that in President Biden's first year in
office, businesses have spent over 131 million paperwork hours
complying with these new regulations, and I can tell you about
that. I am in a business that is all commission. In my
business, we even had to hire a compliance officer and pay him
a salary to comply with these regulations with which we are
getting burdened. This takes valuable time away from productive
activities that could be adding value to the economy and
helping people buy houses. So, we must always be looking at
ways to free up businesses' time so they are not consumed with
unproductive activity.
Quickly, you probably have done some extensive research on
the Dodd-Frank Act, and can you discuss certain parts of the
bill that would lead you to believe we are holding back the
economy that we could re-examine in this committee?
Mr. Michel. Sure. Definitely, Title I of Dodd-Frank, with
systemic risk and financial stability regulation, giving the
Fed and Treasury sort of a blank check to go out and just do
anything in the name of guarding against potential systemic
risk and failure, and that is showing up in crypto and fintech
markets right now.
Mr. Williams of Texas. Okay. My time is up, Madam
Chairwoman. I yield back.
Chairwoman Waters. Thank you very much. The gentleman from
Missouri, Mr. Cleaver, who is also the Chair of our
Subcommittee on Housing, Community Development, and Insurance,
is now recognized for 5 minutes.
Mr. Cleaver. Thank you, Madam Chairwoman. Let me, first of
all, just sort of deal with some of the issues that have been
thrown out.
Mr. Michel, first of all, I appreciate your appearance here
before the committee and presenting information, but what I
would like you to address is, if there is a $2 trillion dropout
of the revenues of the United States, does that contribute to
inflation?
Mr. Michel. A drop in tax revenue contributed to inflation?
Mr. Cleaver. Yes.
Mr. Michel. No, I would not make that argument, and maybe
there is another way you can make that argument, but I would
not make that argument.
Mr. Cleaver. So, dropping $2 trillion out of--
Mr. Michel. In tax revenue.
Mr. Cleaver. --in tax revenues is not as devastating on the
economy as spending $1 trillion for infrastructure. Is it
connected to who does it or what?
Mr. Michel. If you are asking me if one is inflationary and
one is not, then I am going to say that if you drop $2 trillion
in tax revenue out, it is not inflationary. And if you put $1
trillion of spending into the economy, that it is inflationary.
And I guess if that is where this is going, where we have
inflation, all we need to do is increase taxes, I don't know if
that is actually equitable. I don't know that it actually works
that way in practice--
Mr. Cleaver. I didn't suggest that. I will play it back. I
don't think I suggested that. If I did, I am--
Mr. Michel. Fair enough.
Mr. Cleaver. Yes, I misspoke, if I said that. What I am
trying to deal with is we spent $1 trillion. We had a $2.3-
trillion hit on the economy with the tax cuts, and the revenue
is falling substantially short of the $2 trillion to $2.3
trillion. Hopefully, we will get to a point where something is
right or wrong because it is right or wrong, and that is who
did it. And so, the $2-trillion drop hurt us. Let me ask you
one other thing, and then I will move on.
My assumption is that you oppose the bipartisan
infrastructure bill that some of us proudly voted for, both
Republicans and Democrats. Is that true?
Mr. Michel. Correct. I don't think that was a good bill.
Mr. Cleaver. Okay. What would you say to the people who are
concerned about the 45,000 bridges in poor condition in the
United States? What would you say to the people in your
community who need this statistic to realize we are in trouble?
We rank 13th in the world in terms of our aging infrastructure,
with 45,000 bridges in poor condition. What do you say to the
people all around the country who believe we were in trouble?
Every President since Bill Clinton has said they wanted to pass
an infrastructure bill, we need an infrastructure week where
the legislative process is going to begin. So, all of those
people had to have been wrong that we desperately needed an
infrastructure bill, is that what you are saying?
Mr. Michel. Yes. I would say that is wrong, and I would say
that they are politically very popular for every President, and
most Members of Congress, and Senators, yes.
Mr. Cleaver. But why is it popular? Is it because here in
Kansas City, we are getting ready to put in new bridges where
we were having flooding where 25 people died? Is that something
I should be apologetic about? I voted for it very proudly, and
I have not heard a single Republican or Democrat or anybody
else complain about it.
Mr. Michel. No. If I were you, I would want to get as much
money as I could for my constituents from as many places I
could get it from.
Mr. Cleaver. Thank you, Madam Chairwoman. I appreciate the
opportunity. And thank you, Mr. Michel, for your presence at
our committee and your answers.
Chairwoman Waters. Thank you so very much. You can add
clean waterto that, Mr. Cleaver.
The gentleman from Arkansas, Mr. Hill, is now recognized
for 5 minutes.
Mr. Hill. Thank you, Madam Chairwoman. I have certainly
enjoyed this macroeconomic debate with our witnesses and our
Members. It is always rewarding. I am sorry we are not in the
committee room together today.
I would say to my good friend, Greg Meeks, that I
appreciate his work on building bipartisan support for targeted
support in Ukraine with our European allies. I didn't quite
take his messaging that somehow Republicans don't support that,
so I wanted to thank him for his working to make sure we have
bipartisan support there. But I do want to correct the record
for my good friend, Brother Cleaver, in Kansas City, and Greg
on this tax issue. The Tax Cuts and Jobs Act helped all
American families--Brown, White, and Black--with lower tax
rates, easier filing, and a better child tax credit. We need to
make those tax cuts permanent. That should be a priority for
Democrats and Republicans.
On the revenue issue, corporate tax revenues, despite the
large cut in the rate, are at their highest level in American
history. We are earning more corporate tax revenue than we have
in the history of the country, and a trillion dollars came back
into the U.S. for U.S. investment there. So, I think that the
gentleman's argument about revenue loss is quite exaggerated
there. And the real challenge that we are talking about today
is the impact on the supply chain, and Biden inflation, and the
impact on housing affordability, and it is devastating, as I
said in my opening comments.
And I want to start with Dr. Chandan. In your testimony--
which was very interesting--you say the analysis shows that
nationally, the institutional investor share of the market has
risen since just prior to the pandemic, but only accounts for
2.5 percent of home sales. By comparison, individual investors
and mom-and-pop investors in our towns and cities and counties
account for 24 percent of the market. So, Dr. Chandan, is there
evidence that this is only in low-income neighborhoods, or is
it across-the-board in these growing metro areas?
Mr. Chandan. Thank you, Congressman Hill. I think the data
that you cite and that I cite in my testimony is provided by
Freddie Mac in a recently-completed study. While there is
always opportunity, and here there is significant opportunity
to improve data transparency and availability, what we do know
is that nationally, 24 to 25 percent of investors in markets
that are buying single-family homes without the intention of
living in them, or reselling them but are repurposing them as
single-family rental homes, does include a wide range of
investors, and we should be careful not to conflate large
institutions with that entire pool.
Mr. Hill. Thank you. Let me reclaim my time because the
marginal investor in your data you presented from Freddie is an
individual mom-and-pop investor--
Mr. Chandan. Correct.
Mr. Hill. --not, per se, the institutional. Number two, I
have never seen anything that it is disproportionately in low-
income neighborhoods either. Let me ask you this. A lot of
families have kids, and the number of kids in the rental
market--a lot of apartments don't have multi-bedroom units.
Isn't the best place for a mom with kids, who has multiple
kids, sometimes a single-family home? Isn't that a better
choice for her rather than an apartment where they don't have
as much choice and no yard?
Mr. Chandan. One thing that we absolutely do observe is
that as households age in their lifecycle, in particular, as
you point out, as they have their first children, the set of
amenities that they look for changes and expands, and, in many
cases, will include things like parks, and good-quality public
schools that you get better access to when you live in a home,
in large part because of its location. For some families--
Mr. Hill. Yes, I am going to get to that. Thank you for
that. If you have other comments on that, please submit them
for the record because I think this is a key element of what we
are talking about today. I also looked at the affordability
chart, looking at my favorite source. Of course, everybody
loves the St. Louis Federal Reserve Bank. And it shows that
minority homeownership skyrocketed under the Trump
Administration from its post-crisis low of basically 2016-2017.
And then, the pandemic knocked off that home affordability and
ownership rates for Black, Brown, and White Americans, so we
need to get back on that.
I thank my chairwoman, and I yield back the balance of my
time.
Chairwoman Waters. Thank you. The gentleman from Colorado,
Mr. Perlmutter, who is also the Chair of our Subcommittee on
Consumer Protection and Financial Institutions, is now
recognized for 5 minutes.
Mr. Perlmutter. Thanks, Madam Chairwoman. My friend, Mr.
Hill, I think started off on the right track. I am not sure he
ended on the right track, but he started off on the right track
by talking about this being a macroeconomic kind of question
that we are asking. It is also microeconomic, and I would just
say that we have had some questions about supply and demand.
Listening to Dr. Michel, he doesn't really want to mess around
with the supply. He wants to cut the demand, and he cuts the
demand by making sure people don't have any cash. Okay. That
will work. All of a sudden, there will be an oversupply.
In Colorado, long before Joe Biden took office, we have
seen house prices increasing because we have had our population
increasing, and the supply hasn't kept up with the population.
That is really what is happening in Colorado, and probably
other places in the country as well. In Ohio, maybe Arkansas,
maybe New York, there have been people leaving, and house
prices have stayed stable or maybe even dropped.
I guess a question to the entire panel, and, Ms. Pope, I
really appreciated your economic analysis of things, probably
the best, but just a bigger question. Demographically, in the
United States of America, do we have enough housing for our
population, and where do we see our population going over the
next 10 years? Do we think that the supply will keep up with
the demand, or do we see demand shrinking? I will start maybe
with you, Ms. Pope, and see if you have considered sort of the
demographic question, or if you have to look at it on a market-
by-market basis?
Ms. Pope. Thank you so much for the question. In the
future, I do not see the supply increasing. Demand is much
higher than supply right now. And you have to remember that
homebuyers in America, when they are purchasing a home or
looking to buy, and the offers that are coming through the
properties are at least 5 to 10 times more than it has been in
the past, those same buyers are now in a renting capacity. Now,
they are sitting ducks. When you look at all of those buyers
who can't buy because of lack of inventory, that demand is
strong, and the supply is going to take time unless we build
and we do more housing within the cities, within the suburban
areas, so that homeowners can be able to buy. So if the demand
is very low, the supply has to increase. That is the only way
that homebuyers can purchase property.
When you are talking about the offers that are there, as I
mentioned earlier, it just doesn't work with that. There are
just not enough properties. And we need the help, to have
Congress, or anyone that can help, especially with the NAREB
group, so that we can increase the supply so our buyers can
purchase, but I don't see the supply happening that fast. I do
not.
Mr. Perlmutter. Okay. Thank you.
Mr. Calhoun, you had a chart that you wanted to show with
ups and downs of the housing market over the last, I don't know
how many years. But I am curious if you have taken a look at
demographic trends nationally, because it seems to me that sort
of the birth rate is down. I don't know about the immigration
rate. It goes up and down. But talk to me a little bit about
how you see supply and demand on a general basis, not the
monetary supply, just people and housing stock?
Mr. Calhoun. Yes, and there are a couple of factors that
make it clear that we have an absolute housing shortage, and I
note that our fellow panelists from the Urban Institute have
done research on this. One factor to put in is we have an aging
housing supply. It is not keeping up, and there is obsolescence
with about 1 to 2 percent dropping out each year. So, even with
steady state, you have to take that into account, but the big
thing is that we are experiencing a huge shift. The new
households are predominantly households of color, younger
households who will be looking to buy homes. And, in addition,
we have a factor with current older households, a trend towards
families wanting to age in place for a longer period rather
than sell that house and free it up for recycling. We have to
remove barriers to the construction, particularly for the
entry-level market, and that is an absolutely critical part to
keep us where we are, but we also have to move forward.
Mr. Perlmutter. Okay. Let me stop you for one second just
to make kind of a final comment. I know in the Western United
States, the interest rates have already had an effect on the
housing market. Land development has slowed, new construction
has slowed, and home sales have slowed. So, any comment on the
interest rate increases before my time expires--which expires
right now, so you are not going to get a chance to answer.
I yield back to the Chair.
Chairwoman Waters. Thank you very much. The gentleman from
South Carolina, Mr. Norman, is now recognized for 5 minutes.
Mr. Norman. Thank you, Chairwoman Waters. First of all, I
have, probably for over 45 years, built houses. I have built
apartments. We have developed property. Quite frankly, some of
the responses have been laughable. And the Democrats can pick
who they want on the 20-some hearings we have had--this is my
second hearing--but you might want to get people who have been
in the business and could give you some real-life experiences.
The number-one issue that is causing housing prices to go up is
very simple; it is the war this Administration has put on oil
and in gas. Now, the trucks that delivered a load of lumber to
our house today--
Ms. Garcia of Texas. Excuse me, Madam Chairwoman. I cannot
see Mr. Norman. Are you on, Mr. Norman?
Mr. Norman. Oh, yes, I'm sorry. Yes, ma'am.
Ms. Garcia of Texas. I don't see you on camera, sir.
Mr. Norman. Okay. Hold on. Let me get some--
Ms. Garcia of Texas. There you go.
Mr. Norman. You got it? Can you see it now?
Ms. Garcia of Texas. Yes, your friend in Texas.
Mr. Norman. Okay. Can everybody see it? How about now?
Ms. Garcia of Texas. You are good. No, we lost you again.
Mr. Norman. Okay. Awesome. Can you come in and see if you
can--
Chairwoman Waters. Is this--
Mr. Norman. Let me get this straightened out, and I will
have my--what is going on here?
Chairwoman Waters. Mr. Norman, I can't--
Mr. Norman. Yes, ma'am.
Chairwoman Waters. Yes, you are on. We can't see you. Is
your video on? Mr. Norman?
Mr. Norman. Video is on. Let us see. Yes, ma'am.
Chairwoman Waters. We need to see you on. Okay.
Mr. Norman. Okay. Can I--
Chairwoman Waters. You are coming on?
Mr. Norman. We can't get it. Can I come back again?
Chairwoman Waters. Yes, we will come back to you. No
problem.
Mr. Norman. I'm sorry. Thank you.
Chairwoman Waters. Okay. Thank you very much. Let us go to
the next person. The gentleman from Illinois, Mr. Foster, who
is also the Chair of our Task Force on Artificial Intelligence,
is now recognized for 5 minutes.
Mr. Foster. Thank you, Madam Chairwoman. Am I audible and
visible here?
Chairwoman Waters. Yes.
Mr. Foster. Okay. Thank you. I am struck by the fact that
very often, it seems like we put a lot of effort into house
construction, but not necessarily the right houses. If you look
around at the number of empty nesters sitting around in
mansions with large numbers of empty rooms, I bet we could cure
the problem with people who are homeless in this country if we
could somehow snap our fingers and reallocate that effort. I am
a fan of the free market in almost all circumstances, and I am
a little bit distressed by everything that is put into place to
interfere with the free market in ways that lower the ability
of people without a lot of means to purchase houses that they
might be able to afford.
And I was wondering, what are the most cost-effective
interventions in the free market or maybe just returns to the
free market that would allow the supply and demand for low-end
housing to line up, or removal of subsidies that we have in
place, or rules that encourage people to build big houses on
big lots instead of small multifamily? And I am interested in--
we will have to put some Federal money into this--what are the
most effective subsidies and where can we put them, either on
the supply side or the demand side?
Mr. Calhoun. If I may respond, and I will note for the
record that I have both run billion-dollar home lending
programs to families of modest means, and I have also been a
private real estate developer and have experience from that
side as well.
A couple of things that we can do, that we suggest and are
being piloted now, is to help families, as I mentioned in my
testimony, through the vulnerabilities of today's more volatile
world. Gig economy workers shouldn't be precluded from having a
chance at homeownership. And those are things like reserve
funds, which our partner lending institution is piloting, as
well as loss-of-income protection insurance that helps people
make up for the deficiencies, quite frankly, in today's
unemployment insurance programs.
Again, one of the things that we missed in this hearing is,
we are in a different world than we were in 2008, thanks to the
Dodd-Frank Act. People have affordable mortgages right now. We
are not facing a dramatic plunge in pricing because of
foreclosures as we did in 2008. We have made lending more
sustainable. We just need to make it more inclusive, like it
was in the 1950s and 1960s when we brought tens of millions of
White families into the middle class through very affordable
FHA and VA loans that go up to 100-percent financing. If those
are properly underwritten with responsible programs, such as
reserve funds and loss of income insurance, you can do this in
a way that is safer and more inclusive and relies on the free
market to deliver the housing we need.
Mr. Foster. Yes, thank you, but there is still the short-
term problem of the total amount of lumber. And it seems like
part of the way out of that is to allocate the lumber toward
building more smaller units. Dr. Chandan, it looks like you
wanted to say something?
Mr. Chandan. Yes, sir. When we look at sort of the
deterioration in the share of units being built that are small
or entry level, we are down to about 7 percent from something
that was significantly higher. The average home under
construction right now is 2,500 square feet. This is not an
entry-level home. A lot of this is at the local level. The
availability of materials and skilled labor is certainly an
issue. Another is local zoning that limits the ability to use
smaller parcels of land or to build smaller homes.
Another is an allocation issue where in some parts of the
country, local transfer taxes or the costs associated with
buying and selling are high enough that at least on the margin,
it will inhibit some families as they grow, from right-sizing
into a larger home, opening up the supply of entry-level homes.
You stay in that small space a little bit longer than you might
otherwise because the transaction costs are high. Those are all
things that, particularly at the local and State level, we can
begin to address, that are largely in sort of the regulatory
and zoning environment.
Mr. Foster. Thank you, and it looks like my time is up.
Chairwoman Waters. Thank you very much. The gentleman from
Tennessee, Mr. Rose, is now recognized for 5 minutes.
Mr. Rose. Thank you. Thank you, Chairwoman Waters and
Ranking Member McHenry, for holding this hearing. And thank you
to our witnesses. Before I get into my questions, I just wanted
to make a few comments. Earlier in the hearing, the chairwoman
referred to this committee as the, ``Democratic committee.'' I
think that this is one of the problems with the committee as it
is currently constructed. It should be the Financial Services
Committee, of course, not the Democratic Financial Services
Committee. That is why we get some of these hearing titles that
show you, before the hearing even starts, that it will be
biased and not a serious examination of the issues.
Additionally, Mr. Sherman stated that the Democrats' Build
Back Better Act is fully paid for. This was directly
contradicted by the bipartisan Congressional Budget Office
[inaudible]. And I would also like to echo some comments at the
outset that have been made by my colleagues concerning the
proposals that are attached to the list for this legislative
hearing. We are over $30 trillion in debt. We are experiencing
the highest inflation in over 40 years. Gas is $5 per gallon.
And the Majority has chosen to attach proposals to this hearing
that would spend money we don't have, build full palaces that
people can't afford, and exacerbate the inflation that is
hurting everyday Americans.
On December 6, 2021, the Financial Crimes Enforcement
Network (FinCEN) issued an advance notice of proposed
rulemaking (ANPR) on anti-money laundering regulations for real
estate transactions. The proposed rules would apply to non-
finance real estate transactions. FinCEN already applies its
framework to financed real estate and commercial transactions
as well as all-cash residential transactions. If this
rulemaking is finalized, anti-money laundering requirements
would be extended to virtually all real estate transactions.
Dr. Michel, do you see any issues with expanding FinCEN's reach
in this area?
Mr. Michel. I'm sorry, the very last part, do I see--
Mr. Rose. Do you see any issues with expanding FinCEN's
regulatory reach in this area?
Mr. Michel. Yes. It is kind of mind-boggling to me. I don't
know why we would do that. I don't think there is a regulatory
issue here. This is a supply/demand issue and not more than
that. So, yes, I wouldn't be in support of that.
Mr. Rose. And on a similar note, I have previously
expressed concern that the Federal Government uses the Bank
Secrecy Act to deputize the private sector to collect personal
data from American citizens.
Dr. Michel, you have previously recommended that Congress
should simply require financial firms to keep customer records
and then have law enforcement abide by the Fourth Amendment to
access those records. Could you please elaborate on this
approach?
Mr. Michel. Yes. I think that would be a way of handling
this. That is completely consistent with the constitutional
protections that we are supposed to have. If you are accused of
a crime, that is one thing. If you are not accused of a crime,
then you shouldn't be subject to law enforcement actions. It
seems to me the way to handle this with the Bank Secrecy Act is
to say that the bank will keep records so that we can identify
customer transactions. And if there is somebody who is
legitimately suspected of a crime, then law enforcement will,
just like in any other criminal investigation, go get a
warrant, and then they can go and get that information. That is
not a problem in any other criminal investigation, so it
shouldn't be in this case.
Mr. Rose. Thank you. I entirely agree with that assessment.
Dr. Michel, kind of shifting gears, do the Fed's purchases of
mortgage-backed securities put upward pressure on housing
prices?
Mr. Michel. I don't think it is the biggest component, but
yes, the direction has to be upward price pressure because it
is increasing liquidity to some extent in the MBS market,
making it easier to get loans. So, it is magnifying that
problem, yes.
Mr. Rose. And, Dr. Michel, as you know, Democrats on this
committee have been trying to expand the Fed's set of
responsibilities to include things like racial inequality and
climate change. Do you worry about proposals to expand the
Fed's mandate, and what impact do you think they could have on
housing possibly, and should the Fed's responsibilities be
narrower?
Mr. Michel. I am worried, and I do think it should be
narrower, not broader.
Mr. Rose. Thank you. I think my time has expired. Thank
you, Chairwoman Waters, and I yield back.
Chairwoman Waters. You are so welcome. And if it would make
you happy, I wouldn't hesitate to call this a Republican-
Democratic committee, if you would give us a vote on housing,
okay?
Mr. Rose. Thank you.
Chairwoman Waters. The gentleman from Florida, Mr. Lawson,
is now recognized for 5 minutes.
Mr. Lawson. Thank you, Madam Chairwoman, and I would like
to again welcome everyone to the committee. One of the things
that I was thinking about is back in, I think it was 1972, when
I was trying to get a house for the very first time. I owned a
house by 2015, and so, I became an FHA borrower. But I noticed
today that FHA is disproportionately the way that people of
color sometimes go out and borrow money for housing. I never
had a competitive disadvantage in the housing market. The share
of FHA insurance mortgages have failed now to around about 18
percent, and it looks like here, basically in 2020 and to 2021,
they continue to downward trend towards a lower level, I will
say, up until about 2012.
If the present trend of increased home purchases continue,
as projected, how could sellers be encouraged to conduct
business with the FHA barriers when the cash incentivize and
offers above the asking price? And this is to the whole panel.
Ms. Pope. Thank you so much for that question. You are
right that sellers can take offers as cash buyers. We can't
steer them. What we can do, as real estate practitioners, is at
least educate your homeowners, and your sellers about the
different type of financing. Sometimes, cash is not the right
way to go. Sometimes, it is a better way to finance because you
get more money. Sometimes, the cash borrowers are charging less
than more because you think you can close in 7 or 10 days. A
lot of times we find out that a couple of weeks later, you
could have given that homeowner a better opportunity to buy a
home. I would suggest that real estate agents begin educating
and educating their sellers on the different options and why it
is important for homeownership.
Mr. Lawson. Okay. Would anyone else on the panel would like
to respond?
Mr. Calhoun. I will add, FHA can be more user-friendly. It
has been constrained, as you know, in that it relies totally on
appropriated funds for its operations, and it has historically
been underfunded. It has played catch-up recently, thankfully,
through appropriations over the last few years to upgrade its
technology. But FHA needs to operate with the same resources
that other lending options do so that they are equally
competitive. And right now they are very much still resource-
constrained, which makes them less user-friendly for both
borrowers and sellers.
Ms. Choi. I would just like to add that one of the things
that we do have to think about, and I think this also relates
to the last question about why White households are more likely
to have the rich uncle in the first place, is that this is an
outcome of many, many of the prior policies that have been in
place in this country. The only way to reverse that trend is
actually to lift up those poor people who have been previously
discriminated against in the market. And just leaving alone in
the market would not solve the racial disparities, as we have
seen multiple times in a year. We have seen that the racial
disparities have increased over time, and then the Black
households were disproportionately impacted during the Great
Recession. They have lost a huge amount of wealth in the
market.
And one of the reasons is because they have been a target
of predatory lending practices and subprime loans, which made a
huge impact on their wealth. The data shows and a lot of
academic research shows that these subprime loans and some
predatory lending practices were more prevalent in the private
sector. So, I don't think the argument of blaming the
government on every issue actually makes sense, and I don't
think it is actually the core reason that we are seeing the
racial disparities that we are seeing in the housing market
right now.
Mr. Lawson. And I might not be able to get into the next
question, but I had a townhouse, and recently, I got all these
calls from outside people saying that they would like to buy my
townhouse, and that they had the most competitive offer that
they can give me. Those calls come in all the time, but I don't
guess there is anything that we can do about that, because that
really affects the market, whether it is a townhouse or another
rental Since my time has run out, Madam Chairwoman, I will
yield back.
Chairwoman Waters. Thank you. The gentleman from South
Carolina, Mr. Timmons, is now recognized for 5 minutes.
Mr. Timmons. Thank you, Madam Chairwoman, and I want to
thank all of our witnesses for being here today.
Yesterday, during an Oversight Subcommittee hearing where
Democrats attempted to create scapegoats for their left-wing
policies ruining the housing market, one of the Democrat
witnesses advocated for--this was great--a government takeover
of all private property and housing. ``Yes,'' or ``no,'' please
from the witnesses. Does anyone on this panel believe that the
government should own and operate all housing and property
within the United States?
Mr. Chandan. No.
Mr. Michel. No.
Mr. Timmons. Let's just make it easy. Does anybody say yes?
Is there one yes? Can anybody entertain me? Okay. There are no
yeses. Okay. This same witness for the Democrats also advocated
during the pandemic that renters and homeowners should
participate in a, ``rent and mortgage strike,'' and withhold
payments due to their landlords or lenders, whether they can
afford to pay them or not. So, I am going to make this really
specific. Do any of the panelists believe that during the
pandemic if someone did not lose their job, if they were not
under financial hardship, that it would be appropriate for them
to go on a rent or a mortgage strike? Do you think you have to
pay your bills if you can? You might want to say that--
Mr. Michel. You should pay your bills if you can.
Mr. Timmons. Okay. Great, thank you. It seems that the
current Majority's plan to address rising mortgage and rent
costs is just to throw more and more money at the problem
rather than addressing the root causes driving these price
increases. The Federal Government has been heavily subsidizing
housing for decades, with very little to show for it. In fact,
homeownership rates among Black families have actually
decreased since the Fair Housing Act passed in 1968. Yet my
colleagues across the aisle, their plan is just more of the
same. Throwing money at the problem as if demand is the issue
in the housing market, when we all know the lack of supply is
what has long been driving increased costs and finding a home,
whether that is to rent or to buy.
Just last week, this committee marked up the Chair's
Downpayment Toward Equity Act on a party line vote. This bill
would give individuals making over $200,000, which is more than
any of us make as Members of Congress, almost $100,000 grants
for home purchases. Putting aside what a terrible idea that is,
Mr. Michel, how would the housing market respond to this type
of grant program were it to become law?
Mr. Michel. Again, it is the same sort of phenomenon where
you can look at a major drop in interest rates. What has
happened over time is that decrease has been capitalized in
home prices, so when the interest rate drops, the monthly
payment drops. It is the same sort of effect. You would expect
that to be capitalized in home prices in a relatively short
period of time, maybe a little bit longer than the interest
rate. Sellers would recognize that somebody is already coming
to the table on a regular basis with that first, say, $50,000
or $100,000 covered. Therefore, you know that you can increase
the price. That is going to get capitalized in prices.
Mr. Timmons. You kind of answered it, but what would the
inflationary impact be? Would it go up?
Mr. Michel. Up, yes, that would be the direction, up.
Mr. Timmons. In short, the Chair's bill would make
inflation even worse than it already is. Mr. Michel, could you
explain to us how housing costs factor into the Core Price
Index?
Mr. Michel. Yes. It is a shelter-based service sort of
price where you have rental prices incorporated into it, and
then for homeowners, it is a rental equivalent. So, it is based
on the value of homes, and those also affect rents. And then
the service that you get out of that component of your shelter
is calculated to save the statistic part with a lag. It goes
into the CPI, and it becomes a part of the index, and it is
done with a fairly substantial lag. So, we are probably going
to see an elevated shelter component of the CPI for at least
another year, no matter what.
Mr. Timmons. Okay. Is it fair to say that this down payment
grant program would directly counteract the actions being taken
by the Fed to lower inflation?
Mr. Michel. Yes, and that it would continue to put upward
pressure on the CPI through that housing component, yes.
Mr. Timmons. Thank you. It is obvious that we need to be
focused on increasing the supply of housing rather than pushing
supply-side subsidies when demand is already sky high.
Especially throughout the Sunbelt, like in my State of South
Carolina, we need more homes, not more subsidies. Thank you,
Madam Chairwoman. I yield back.
Chairwoman Waters. Thank you very much. The gentlewoman
from Massachusetts, Ms. Pressley, who is also the Vice Chair of
our Subcommittee on Consumer Protection and Financial
Institutions, is now recognized for 5 minutes.
Ms. Pressley. Thank you, Madam Chairwoman, first and
foremost, for your leadership and for the class, decorum, and
fairness that you exhibit every day in this role.
Housing is a fundamental human right, yet across the
country and in my district, the Massachusetts 7th, millions of
people do not have access to a safe, decent, and affordable
place to call home. For decades, Black families have been
locked out of homeownership opportunities due to discriminatory
lending. And now, private-equity-backed institutional landlords
have pushed this dream even further out of reach by gobbling up
single-family homes and worsening the housing crisis across
this country.
Ms. Pope, the 5 largest single-family rental companies own
almost 300,000 homes. What are the consequences when
institutional investors purchase these homes in bulk, often in
cash, and how are they worsening housing affordability and
forcing would-be homebuyers into the rental market?
Ms. Pope. Thank you for the question. Let me say again,
when lenders hesitate to lend to low-balance mortgages, that
means lower properties in neighborhoods, buyers can't purchase
when they are hesitating, and what that does is it opens up the
doors, as I stated earlier, for investors who pay cash. They
buy the properties in bulk, for less money, then there is
wholesaling. It displaces the residents, and it creates low
inventory for the neighborhood.
When you have these cash buyers, the cash investors, and a
homeowner can't have that American Dream because they are
bought out of a cash deal, it makes it very difficult. Then,
they have to go back and try to rebid on properties. That makes
it harder because now it means there are many buyers who are
pricing higher than is normal, which pushes them out of the
market. It brings them into a mode where they have to rent,
because many of them are in a situation where the rental market
is getting ready or their rents are getting ready to either
increase or is getting ready to ask, so they have to re-sign
that lease for another year. So, it does stop a lot of
prospective Black homeowners from buying homes.
Ms. Pressley. Thank you. And, Ms. Pope, most of these homes
that these institutional investors are buying up are in
predominately Black neighborhoods. So, yes or no, based on what
you were saying, is the influx of institutional investors in
cash buyers driving up home prices in predominately Black
communities?
Ms. Pope. Yes.
Ms. Pressley. And homebuyers, Ms. Pope, are not the only
ones impacted. Are these communities seeing rents go up as
well?
Ms. Pope. Absolutely.
Ms. Pressley. And, Ms. Pope, would you say that
institutional investors are accelerating gentrification of
communities of color and displacing low-income residents?
Ms. Pope. Yes.
Ms. Pressley. Thank you. That is exactly what I have been
hearing from people in Cities across my district, like
Cambridge and Boston, where rents have risen by 30 percent and
27 percent higher than last year, respectively. This is
unsustainable, and our most-vulnerable constituents are
drowning financially because they cannot afford these rent
increases. This hearing is about homeownership, but right now,
homeownership isn't even feasible for many people in my
district who are being squeezed by predatory rent hikes imposed
by institutional investors.
Mr. Calhoun, you mentioned in your testimony that broad
student debt cancellation would help address the racial
homeownership gap. I agree. What other policies will provide
relief to tenants facing unsustainable rent increases?
Mr. Calhoun. Again, a couple of things. We have to increase
the supply of affordable rental housing as well, and then one
of the provisions that expired in January, the Children's Tax
Credit. One of the things we talked about is homeownership
producing wealth, and it is also a manifestation of people's
existing wealth and existing financial security. Another thing
is, actually, there is recent Federal Reserve research which
shows that expansion of Medicaid increases not just general
financial security, but homeownership, again, what you have
talked about, putting people in a stable financial position so
that they can either securely rent or purchase a home.
And if I may, I would like to give a shout out to two
programs that we need to lift up, that have come out of
Massachusetts. That is where one of the largest first-
generation targeting programs was implemented. That was the
basis for Chairwoman Waters' provision. And it also has one of
the largest Statewide income loss insurance programs, which,
again, we need those kinds of new approaches to provide
efficient ways to address these housing problems.
Ms. Pressley. Thank you. I was trying not to be too
boastful, but I appreciate your lifting up those successful
models. And, again, I thank you, Madam Chairwoman, once again
for your steadfast leadership.
Chairwoman Waters. Thank you very much. The gentleman from
Wisconsin, Mr. Steil, is now recognized for 5 minutes.
Mr. Steil. Thank you, Madam Chairwoman. I appreciate you
calling today's hearing. I have been listening along as we go
today, and I continue to hear policies by those on the left
that actually exacerbate inflation. People are getting
clobbered. I was recently at a gas station in Beloit,
Wisconsin, talking to a couple who were frustrated. They could
barely afford to fill up their car with gas. They are
frustrated with the grocery bills. Their rents are increasing.
They are just getting clobbered, and they are getting clobbered
because costs are going up.
And what I continue to hear is all sorts of excuses as to
why costs are going up rather than looking at the real problem,
and the real problem is that we have runaway spending in
Washington, D.C. We have an energy policy that is on its head.
We have a contraction of supply, particularly in energy. We
have to unleash American energy because people are getting hurt
every day by Democratic policies.
And so, I listened to what we are doing. I listened to
where we were in the markup. We had this debate. We looked at
billions of new dollars of spending, which would accelerate
inflation. We just heard a proposal again. We saw it in the
testimony about wiping away student debt, which of course,
really isn't wiped away. It just shifts the burden to who pays
for it, and it shifts it into more debt that all Americans will
pay for, to the benefit of some of the wealthiest Americans,
people who received graduate degrees, doctors, attorneys. That
is who it helps. And what would it do? It would accelerate
inflation.
Dr. Michel, as we listen to this debate today and we are
looking for real, substantive solutions, is the challenge on
the demand side that Congress should be subsidizing the demand
side, or is the problem on the supply side that we should be
looking and focusing in on how do we sustainably increase the
housing supply? And how do we consider that in this
inflationary environment that the outgoing Majority has put us
in?
Mr. Michel. Sure. The mistake with the supply argument is,
well, we just need more houses, and that is a mistake because
it is looking at supply without talking about demand. You
should be talking about supply relative to demand. We know
supply is relatively inelastic and fixed in the always-
constrained housing supply markets. Therefore, the worst thing
to possibly do is to constantly increase demand, which is
exactly what Federal policy does. You are only going to get one
result from doing that.
And then, to go to the sort of underlying issue, I think
this is a great example that we just heard. If it is true that
private equity firms are predominantly buying up foreclosed
properties in poor neighborhoods, then the problem to address
is the poverty, not the demand-side loan and lending ability of
all of these government agencies. That is the way to address
that.
Mr. Steil. Let's dive in on kind of what would happen if we
accelerated dramatic new Federal Government spending programs
as we think about the inflationary pressures that we are
feeling here in the United States. We marked up a bill that
would have spent about $100 billion or so. What would be the
economic impact of pumping in another $100 billion into the
U.S. economy that, at the start of the Biden Administration,
Democrats on a party line vote passed $1.9 trillion in new
government spending already, when we took the fire that has
been started, and we threw on $5 gallon of gasoline onto it?
Mr. Michel. You are going to get more inflation without
clearing the supply problems. If you, for example said, okay,
from now on, everybody gets whatever loan they want, well, they
can go out and do whatever they want. That is fine. Everybody
is going to be bidding on the same amount of stuff, the same
amount of real resource constraints.
Mr. Steil. If we pump in demand-side subsidies, to make it
really clear, what happens to prices?
Mr. Michel. They go up.
Mr. Steil. So, prices go up. Does it make it more
affordable or less affordable to a family in Wisconsin?
Mr. Michel. It makes it less affordable.
Mr. Steil. The Democratic policies are pumping a whole
bunch more money which actually, at the end of the day, is
going to hurt the people that we hear them claiming to assist.
Is that accurate to you?
Mr. Michel. That is accurate, yes.
Mr. Steil. It is the same story we see on energy policy. It
is an attempt to contract supply on the energy side so that we
don't unleash American energy, so we jack up the prices. We
have some sort of transformational change, and it is clobbering
people every single day. Then, we come over to the housing side
where people are getting pinched by higher rents and
unaffordable mortgages, and we see the Federal Reserve having
to raise interest rates because the Democrats are awash in
runaway spending. As interest rates go up, it is even harder to
get into a new home. It is harder to save for your down payment
because of the inflationary pressure we are in. The hypocrisy
is thick.
Dr. Michel, I appreciate you being here. Cognizant of the
time, Madam Chairwoman, I yield back.
Chairwoman Waters. Thank you very much. The gentleman from
Massachusetts, Mr. Lynch, who is also the Chair of our Task
Force on Financial Technology, is now recognized for 5 minutes.
Mr. Lynch. Thank you, Madam Chairwoman, and thank you for
having this hearing. This is probably one of the most
pernicious problems that I deal with in our district. I
represent the other half of Boston that Ms. Pressley does not
represent, and we are really struggling with housing costs all
across my district.
Dr. Chandan, I noticed, looking at the housing data, that
the applications for mortgages have dropped off considerably,
and that is understandable with the rise in interest rates. But
I also noticed that the number of people applying for an
adjustable mortgage has basically doubled. And I was here in
2008 on this committee, and I saw what happened when adjustable
mortgages reset and people got stuck. The valuation of their
home was going down, and yet their payments were going up, and
we ended up with a housing crisis. Are there any protections
that are available now, under today's circumstances, that were
not available then that might prevent us from going into a
similar tailspin?
Mr. Chandan. Thank you for the question, Congressman. I
think, as compared to the housing boom and bust and financial
crisis, there are a number of changes that have been made in
the market. The adjustable rate mortgages of today do not have
the same risk profile as those made during the housing boom. We
don't see teaser rates. We don't see a rapid succession of
resets. We don't see penalties on a refinancing into a
permanent mortgage. That being said, adjustable rate mortgages
ultimately do reset, so it is important that borrowers,
particularly aspirational borrowers who may be income-
constrained, who are reaching for that housing opportunity,
that when they are taking an adjustable rate mortgage, they are
mindful of and are well-informed of the potential risks that
those products present.
Mr. Lynch. I appreciate that. I do see there are quite a
few products out there that are 7-year resets, so the buyer has
some lead time there. And I think there is an open question of
where we will be at with interest rates in 7 years, and the
value of their home could be exceedingly greater at that point,
so they might have a lot more equity and they could deal with
it.
Mr. Calhoun, is there a concern out there? Is there a
reason for me to be concerned about the increase in the number
of adjustable mortgages? This has doubled pretty quickly. In a
matter of weeks, it spiked. So, is there a concern out there?
Is there a reason for concern out there?
Mr. Calhoun. Thank you for the question. There is reason to
watch it carefully. We are in a much different world than the
mortgages in 2008, which actually had built-in increases even
if market rates did not increase. But most borrowers have
trouble with shocks to their mortgage payments. I think perhaps
an even bigger risk that we face right now is there is heavy
marketing of cash-out refinances today, and they come with the
double whammy of not only are you doing that with a high
interest rate, you are typically giving up a much lower fixed
rate to get that. And the regulators in our housing agencies
need to be very vigilant to protect consumers from that kind of
predatory lender loan flipping. I think that is the big risk
that we face out there. The Consumer Financial Protection
Bureau (CFPB) has done a good job of keeping protections on
adjustable rate mortgages, but, again, this is a place where
consumers have a hard time understanding the impact of the
increases and being able to absorb those shocks. Thank you for
keeping an eye on this.
Mr. Lynch. Thank you. Ms. Pope, do you have anything you
want to add on that? I know you are keenly aware of this
problem. I just would like to get your perspective.
Ms. Pope. Yes, thank you. I would like to add that when the
homebuyers or homeowners are looking to raise their higher
price, our best advice, especially coming from the National
Association of Real Estate Brokers, is to look to a housing
counselor. It is a free service. It educates them. It provides
the understanding of these mortgages so that they are not going
into these default loans. We do have an affiliate, the Housing
Counseling Agency, NID, that is a nonprofit, and we look to
them to do these so that the homeowners can understand what
they are getting. That is what I would add to Mr. Calhoun's
statement. Thank you.
Mr. Lynch. Thank you, Ms. Pope. Madam Chairwoman, I yield
back. Thank you very much again for having this hearing.
Chairwoman Waters. Thank you very much. The gentleman from
South Carolina, Mr. Norman, is now recognized for 5 minutes.
[No response.]
Chairwoman Waters. I know that Mr. Norman had some problems
early on and he could not be on the screen, and evidently those
problems still exist. We will just keep going, and we will try
and get him up before the end of the hearing.
The gentlewoman from North Carolina, Ms. Adams, is now
recognized for 5 minutes.
Ms. Adams. Thank you. Thank you, Chairwoman Waters, and
Ranking Member McHenry. This is a very important hearing, and I
certainly appreciate you having it. And thank you to our
witnesses for your testimony.
Mr. Calhoun, in your testimony you cite the affordable
housing shortage as contributing to the issues that renters and
buyers are facing. And just yesterday, our committee held a
hearing on the single-family rental industry and the role they
played in snapping up starter-price homes, further constricting
the already-tight market. The homes that these firms are
purchasing are, not surprisingly, concentrated in predominantly
Black and Brown neighborhoods. And the same is true here in my
district in Charlotte-Mecklenburg, North Carolina, where
investors are willing to pay well above market prices in cash
for homes and are acting as a gentrifying force. Can you
discuss why addressing the housing shortage is imperative to
improving housing security and homeownership opportunities for
all Americans?
Mr. Calhoun. Thank you for the question, Representative.
Absolutely, particularly, as others have mentioned, in the
starter-home market is where we are feeling the most crunch for
supply of available homes, and that is where we are seeing a
lot of these houses being picked up. The first thing we should
do is our Federal housing agencies as well as the GSEs should
stop their auction sales of distressed loans in Real Estate
Owned (REO) properties, and should instead put them back into
individual homeownership, because when they auction them, even
with some set-aside programs to nonprofits, overwhelmingly,
these go to institutional investors, who are the ones who are
able to afford to buy a whole pool of loans, and that is where
a lot of them get snapped up. They also were buying individual
homes, as you described, and that is a concern. And we need to
both provide more affordable housing and not see it
unnecessarily siphoned away out of the homeownership market in
the affordable rental market.
Ms. Adams. Okay. That is what we can do to ensure that we
don't see this transfer of housing and wealth from America's
families to Wall Street. That is your opinion?
Mr. Calhoun. That would be a big step in at least slowing
that down.
Ms. Adams. Thank you, sir. I am proud to be the lead
sponsor of H.R. 7078, the LIFELINE Act, along with
Representative Rouzer, and Senators Leahy and Collins, a bill
that would use already-appropriated dollars to support lots of
funding housing development, and would free up over $8 billion
in State and local Fiscal Recovery Fund dollars for affordable
housing. We have over 100 national and local groups endorsing
the bill, including the League of Cities, the Conference of
Mayors, the National Association of Counties, and the National
Association of Home Builders, so I do want to encourage all of
my colleagues to sign on to this common-sense legislation.
And, Dr. Chandan, in your testimony, you concluded that we
need a multifaceted approach to enhancing the affordable
housing supply. Can you briefly discuss how increasing the
housing supply, be it through public housing investments, or
more Low-Income Housing Tax Credits (LIHTC) Fund housing, could
immediately blunt the negative impacts to rentals that we have
observed?
[No response.]
Ms. Adams. I think there is some kind of problem, Madam
Chairwoman, with the--
Chairwoman Waters. Where is that sound coming from? Do we
have Financial Services staff?
Mr. Calhoun. If it is helpful, Representative Adams, I can
address that while he is getting--
Ms. Adams. Okay, Mr. Calhoun, would you?
Mr. Calhoun. Yes.
Chairwoman Waters. The sound is gone. Were you responding
to Ms. Adams, Mr. Calhoun?
Mr. Calhoun. Yes.
Chairwoman Waters. Please, go right ahead.
Mr. Calhoun. Your bill, H.R. 7078, is a great way to
leverage and expand one of the most successful programs, the
LIHTC, for adding to sustainable and affordable rental
properties. And allowing it to use the Fiscal Recovery Funds
(FSF) is a very efficient way to do that. And we certainly join
the endorsement of that bill.
Ms. Adams. Thank you. Dr. Chandan, we have 30 seconds. Did
you want to respond?
Mr. Chandan. Yes, if you are able to hear me, I think that
Low-Income Housing Tax Credits is probably the most effective
program we have in this country for addressing the housing
needs of our most income-constrained families. And expansions
of that program that would allow for increases in preservation
of the low-income housing supply are going to be absolutely
critical. It is not a surprise to me that there is broad
support for this program.
Ms. Adams. Great. Thank you, Madam Chairwoman. I yield
back.
Chairwoman Waters. Thank you very much. The gentleman from
South Carolina, Mr. Norman, is now recognized for 5 minutes.
[No response.]
Chairwoman Waters. Is Mr. Norman back?
Mr. Norman. Madam Chairwoman, can you hear me?
Chairwoman Waters. Yes.
Mr. Norman. Okay. How about see me?
Chairwoman Waters. Okay. You are recognized for 5 minutes.
Mr. Norman. Okay. Thank you so much. First of all, thank
you for this hearing. And as goes housing, so goes our economy.
I think most economists recognize that. I have been building
houses, both commercially and residentially, for over 45 years,
and, quite frankly, I have heard a lot of people with answers.
The problem we are having is very simple: gas and oil prices.
The truck that brought lumber to the house today was not
powered by solar panels. It was not powered by wind. It was
powered by natural gas. If this committee really wanted to get
to the to the bottom of this, high gas prices affect over 137
different subcontractors within the housing industry, like the
sheetrock hangers, the people who dig the footings, the
painters, and the architects. And to have a 106-percent
increase in gas, is what is driving the prices up.
The second issue is not being able to get workers. This
Administration paying people not to work is a severe problem.
Third, supplies. I tried to order windows today, a simple
window. Guess what kind of time frame we are talking about?
Seventeen months. Seventeen months for a simple window. For
those of you who have an ear with this Administration, beg them
to let us start producing our own oil and gas and let's get
away from buying it from oil countries like OPEC.
I have heard a lot of the blame game going around. I have
heard the theory that algorithms are at fault. I don't
understand that logic. I have heard the opinion that appraisers
are a problem, and that they appraise minority homes less. For
those of you who have never done this, the banks, the lenders
determine who the appraisers are. The prices don't know if they
go into a house of a White person, a Black person, the red
person. They don't know that. They appraise for what they see,
and the fact that I think Ms. Pope said, there needs to be more
Black appraisers. Appraisers are needed everywhere, so it
doesn't matter the color of your skin.
I have heard the theory that institutional buyers reduce
homeownership and that somehow they are to blame. Institutional
buyers buy from that mom and dad who have owned the home for
years, that young couple who have maybe owned a home for years
and want to sell. Now, tell them that institutional investors
are bad. They are just doing what they do best, which is invest
in the capitalistic system, if they help the housing market. I
have heard the question, why can't the government get involved
to make developers build on bigger lots? The very simple answer
is people don't want big lots. The reason people rent in a lot
of cases is because they don't want the headaches of owning a
home, of keeping it up, or paying the taxes.
So, the blame game is directly the responsibility of this
Administration. Under the Trump Administration, homeownership
for everyone was at an all-time high. And, quite frankly, if
you want to really get the job done, you really need to talk to
whomever is running this country and tell them we have to get
the oil and natural gas back, and the blame game has to stop.
Putin didn't cause the gas prices to go up. Russia didn't cause
it. Santa Claus didn't cause it. It is this Administration and
their lame policies that are killing this country. Inflation is
a 100-percent tax on every American regardless of the color of
your skin.
And let me just say this, and I appreciate this panel, but
I would suggest having people who have actually been in the
business. These armchair quarterbacks who have never done it,
it is like going to a doctor who has never operated. He has
read about it, but he has never operated. Or, would you get on
a plane with a pilot who has never flown a plane? He has read
about it. I would suggest if you don't really want to get to
the bottom, get people who have experienced the housing at its
basic level, and that will get the problem solved.
And I would just ask that we have more hearings in person.
I apologize for the technical difficulties. And Madam
Chairwoman, I yield back the balance of my time. Thank you so
much.
Chairwoman Waters. Thank you very much. Yes, we do decide
who our witnesses are, and it's the prerogative of the Chair
and my staff. Thank you.
The gentlewoman from Michigan, Ms. Tlaib, is now recognized
for 5 minutes.
Ms. Tlaib. Thank you so much. Ms. Pope, before the gas
prices went up, did we have a housing crisis?
Ms. Pope. Absolutely, yes.
Ms. Tlaib. Yes. How about you, Mr. Calhoun? Did we have a
housing crisis?
Mr. Calhoun. We have had a housing crisis and a shortage of
production of housing. The National Association of Home
Builders has described the shortage as going back at least 6 to
8 years.
Ms. Tlaib. That is right. I think it is important to make
sure we push up against some of the gaslighting that continues
to happen, and understand this housing crisis is not going
anywhere. It has nothing connected to the cost of living, if
anything, corporate greed and price gouging by many of the
political corporate donors that benefit from the high price
even though the barrel of gas is going down, the prices
continue to go up. Chairwoman Waters, I cannot thank you
enough. You taught me that housing is infrastructure, and that
housing is a human right. And I know during this pandemic, cash
buyers, as we all know, have intensified bidding wars, driven
up the housing prices and pushed many first-time cash-strapped
homebuyers out of the running, out of being able to have their
own homes.
According to Redfin, cash buyers were 4 times more likely
to win a bidding war against buyers with mortgage financing in
2021, as many of you have already testified to. I know the
Urban Institute also found that 3- and 4-bedroom homes priced
at or below $100,000 are all purchased by all-cash buyers and
investors. This is very important to communities like mine.
This disproportionately affected communities that I
represented. More than half of the homes in my district right
now all are valued less than $100,000, and the Urban Institute
has found that it is actually more difficult for borrowers to
get an FHA mortgage for a home valued at less than $100,000
than for a loan larger than $100,000. Why?
We know this doesn't make any sense and that countless
homebuyers, particularly first-time homebuyers, are being
locked out of being able to get homeownership, which really is
a connection to economic stability and pulling people out of
poverty. This has impacted communities like mine, Detroit,
which is an over 80-percent Black community. This has resulted
in Michigan actually losing more Black homeownership than any
other State in the country.
This is so important. Mr. Calhoun, FHA borrowers are
overwhelmingly first-time homebuyers, as you know, and it
impacts people like in my community who, on average, have less
financial flexibility and lower down payments. How can we get
the FHA financing improved? How can we make competitive
financing options?
Mr. Calhoun. Thank you for the question. I would say, first
of all, we have great leadership at HUD with Secretary Fudge,
and great leadership with the Center for Responsible Lending,
Julia Gordon at FHA, who was totally committed in her career to
doing this. A bunch of it is just playing resources at FHA.
Again, by statute, they don't get to use any of the FHA
premiums for operations, that is, to insulate the reserve fund.
But that means they are totally dependent on fund
appropriations and are tremendously underfunded compared to
comparable private enterprises. First of all, they need those
resources, but they do have a number of initiatives underway.
They were able, thanks to some special appropriations, to
upgrade their technology, which saved them in the crisis.
Ms. Tlaib. Yes. And I do have, H.R. 1532, which is in the
Senate, that actually directs HUD to be able--and there is no
financial impact on this--to look at best practices for FHA to
be able to look at these small-dollar mortgages.
Professor Chandan, should we expect this trend to continue,
going upward? What can the Federal Government do, in your
opinion, to ensure that homes get into the hands of individual
homebuyers instead of these private equity firms, and LLCs, and
others that have been swallowing them?
Mr. Chandan. Sure. I think that the key issue emerging from
the data that we have available is that while there is a pool
of buyers that are positioning homes for the rental market that
would otherwise be available for ownership, it is a very mixed
group, and that we should not conflate the larger pool with
that very large survey of private equity investors that, in
fact, accounts for only about 2\1/2\ percent of the buyers.
What I would suggest is that when we are thinking about the
rental supply in this country, ensuring that we have a diverse
supply of rental opportunities, whether it be urban apartments,
whether it be single-family homes, where someone wants the
benefit of being able to live in that home, but it is also
making the tradeoff. They don't want the obligations of
homeownership, but they are willing to trade off the benefits
that come with ownership as well and making that in an informed
way addressing the supply issues. When we look at what is being
built, the average home under construction today is 2,500
square feet. That is not within reach of many aspirational
buyers. Addressing many of the challenges we face at the local
level to ensure that we are able to build smaller homes that
are within reach of some of those otherwise single-family
renters is critical here.
Ms. Tlaib. Thank you so much, and I yield back, Madam
Chairwoman.
Chairwoman Waters. Thank you very much. The gentlewoman
from Pennsylvania, Ms. Dean, is now recognized for 5 minutes.
Ms. Dean. Thank you, Madam Chairwoman. Are you able to hear
me? I have had some technology problems.
Chairwoman Waters. Yes. We can hear you.
Ms. Dean. Wonderful. Thank you, and thank you for hosting
this important hearing.
Dr. Choi, I would like to start with you. I was struck by
your testimony that unless we take action, you said the Black/
White homeownership gap will remain unchanged for 20 years.
Obviously, we cannot sit back and do nothing as policymakers.
We have an obligation to try to correct that and close the gap.
My district is Montgomery in Berks County, suburban
Philadelphia. In my district, White homeownership is at a 76-
percent rate, while Black homeownership is at 45, almost 46
percent, according to the National Association of REALTORS,
putting the Black/White homeownership gap at over 30 percent,
which is simply unacceptable.
We need to take action to address this tremendous
disparity. We know how important homeownership is for families
to build wealth. It is not just about having a place to live.
It is about being able to help your kids pay for college, and
to retire with dignity. One of the policy solutions you put
forward to address the homeownership gap is targeted down
payment assistance programs. So, I am proud to be a co-sponsor
of H.R. 4495, the Downpayment Toward Equity Act, which
authorizes a new HUD grant program to assist first-time, first-
generation homebuyers in purchasing a home. I would love to see
people in my district taking advantage of it.
Dr. Choi, can you talk about how targeted down payment
assistance programs, such as the one proposed by H.R. 4495,
would address the racial wealth gap?
Ms. Choi. Yes. Thank you so much for the question. The
existing programs--a lot of them have income-only criteria. And
then, we do find that if we actually impose the first-
generation criteria on top of income, that actually expands the
share of Black and Latino households who can take advantage of
those kinds of programs.
I do acknowledge that in this current market where the home
prices are really heated up and the supply is restricted, a lot
of people, even with down payment assistance programs, are
really finding it difficult to become homeowners because they
are not competitive enough. So, I do think this policy will
have a longer-term impact because it is better targeted, but I
don't think it will have an immediate outcome. But in the long
term, it is one of the policies that can really, really kind of
make a change in better targeting Black and Latino households
who have been discriminated against in the housing market for a
long time.
And I don't think if we kind of do it a very clever way of
not trying to distribute money all at the same time, it
wouldn't really increase the inflation pressures. If we
actually do it in a very clever way and think for the long
term, then it can actually do a better job of targeting the
people who do not have a rich uncle that can support them
getting into the housing market and create a more equal
society. I think this could also have an impact on improving
the economic health and resilience of our vulnerable
communities, because when the pandemic hits and when the
inflation goes up, it is the renters who are hit harder because
their rent prices go up very fast. But if you are a homeowner,
you are actually secured in paying the amount of mortgage
payments over a long period of time, so you are less volatile
to the economic shocks.
So, although there could be some preferences in accessing
homeownership, if a person is disadvantaged just because they
don't have wealthy parents, we do have to fix that issue. And I
do believe that the target of a down payment assistance program
is a long-term good policy. Thank you.
Ms. Dean. Thank you, Dr. Choi. Ms. Pope, in the remaining
time that I have, I was struck by your testimony on this issue.
You stated that rising interest rates along with rising home
prices and a limited housing inventory make a perfect storm to
suffocate Blacks out of the housing market. I believe you are a
practitioner, so please correct me if I am wrong there. Can you
speak to this? What can we do to mitigate the effects of the
current market conditions, particularly for minority
households, and from your practice, from your work, what do you
hear about preferences and the desire to be homeowners instead
of renters?
Ms. Pope. Thank you. I will be quick. The down payment
programs are very important for Black Americans as we try to
get into homeownership. Also, we are dealing with the
elimination of low-level pricing adjustments. That has been a
challenge with the credit scoring because the percentage points
is pulling us out of that. Also, with the appraisals we
mentioned earlier, we are on the front lines of appraisals.
There have been biases and there has been documentation as it
pertains to the appraisals and the biases that happen within
the Black industry as well as what I like to say is the student
loans. If we can bring that to a level where it is more
affordable, Blacks would be able to buy a home.
Ms. Dean. Thank you. I see my time is up, so I yield back.
Chairwoman Waters. Thank you very much. The gentlewoman
from Georgia, Ms. Williams, who is also the Vice Chair of our
Subcommittee on Oversight and Investigations, is now recognized
for 5 minutes.
Ms. Williams of Georgia. Thank you, Chairwoman Waters, for
first holding this very critical conversation as it means so
much to me and my constituents in Atlanta and the rest of the
nation, because my hometown, Atlanta, unfortunately leads the
nation in the racial wealth gap, and, unsurprisingly, it also
leads the nation in the percentage of homes bought by
investors.
Homeownership is tied directly to the ability to build
generational wealth. When individual homeowners are locked out
of the market by investor purchases, they have fewer
opportunities to buy a home and build the type of generational
wealth that will help close the racial wealth gap not only in
Atlanta, but across the country.
So, Dr. Choi, listening to your testimony and the
conversation that you were just having with Representative
Dean, I am wondering what specific investments can we make to
put individual homebuyers on more equal footing with private
equity investors?
Ms. Choi. Yes. That is a really great question, and I think
one of the things I would like to also point out about the
impact of institutional investors is that there is various
research, but then particularly in Atlanta, there has been
recent research because institutional investors are so
prevalent. So nationally, they might not have a large impact.
But in Atlanta specifically, we do find that an increase in
institutional investors has affected renters, and especially
Black renters, to access homeownership.
Ms. Williams of Georgia. Unfortunately, Atlanta is also at
the top of that list, Dr. Choi.
Ms. Choi. I guess so, yes. I think the data is really
concerning. Further, I think we talked a lot about the down
payment assistance program. I know that some lenders and also
GSEs are considering special purpose credit programs (SPCPs)
where they can direct access to some of the capital to the
communities or people of color who have been previously
discriminated. I think SPCPs are another good way to bridge the
racial equity gap in this country.
Another thing that I think is important is thinking about
including rental payment data into mortgage underwriting. One
of the things that we also see from the data is that a greater
share of Black and Hispanic households do not have FICO scores,
or they have lower FICO scores. And if you actually include
rental payment history data into mortgage underwriting, our
research does show evidence that this does disproportionately
help households of color. I know that there is some movement in
this space, but we also encourage more consideration of
including rental payments in mortgage underwriting.
Ms. Williams of Georgia. Thank you, Dr. Choi, and that is
something that we are absolutely working on under the
leadership of Chairwoman Waters in this committee. I just had
an amendment last week that will do just that, allow consumers
to opt into including their rental history in their credit
scores. Also, during the pandemic, the percentage of home sales
to first-time homebuyers has been much lower than the 5-year
average percentage. So, Dr. Choi, what does this mean for long-
term homeownership trends and our ability going forward to
address inequities in homeownership?
Ms. Choi. Yes. I think homeownership is very unique because
it is kind of like a way to build long-term wealth. And what
our research shows is that if you delay purchasing your first
home, you actually have lower wealth at the age of retirement,
so the timing of buying your first home--the age is very
important. And we know that Black households and Black people
are less likely to buy homes earlier in their lives. That is
one of the reasons that it is not just access to homeownership;
it is the age of accessing homeownership and also sustaining
homeownership. All of that factors into the wealth disparities.
And as we mentioned again and again in this committee,
homeownership and wealth transfers from parents to children, so
this is not just one family issue. It actually is creating
intergenerational wealth inequality, and that is a key reason
that we have persistent racial disparities in this country.
Ms. Williams of Georgia. Thank you so much, Dr. Choi.
Increasing homeownership, especially among Black homebuyers, is
not guaranteed without meaningful policy intervention. So, Dr.
Choi, your organization estimates that homeownership could
decline by 2040, especially for people who look like me, if
action is not taken. Can you explain how this projection was
reached, and what steps can be taken to expand government-
backed loans to first-time homebuyers, particularly Black
borrows?
Ms. Choi. Yes. One of the things that I also wanted to
point out about this research is that this was done before the
pandemic, so we didn't incorporate the impact of the pandemic,
and if we actually do, there is a high likelihood that the
numbers would look worse over time. So, we do see that every
time there is an economic shock, it is actually the communities
of colors that have been disproportionately harmed. The
pandemic, and the Great Recession show some evidence that when
their economic situation is negative, people of color are most
impacted. We did our projections by looking at the past data.
This is a projection of household formation and income, and all
of those factored into access to homeownership. And then, we do
find that also because, again, homeownership--oh, sorry.
Ms. Williams of Georgia. Dr. Choi, unfortunately, I am out
of time, but I was so intrigued by your research that I will be
following up with additional questions.
Thank you, Madam Chairwoman, for hosting this hearing, and
I yield back the zero time that I have remaining.
Chairwoman Waters. Thank you very much. And I would like to
thank our distinguished witnesses for their testimony today.
The Chair notes that some Members may have additional
questions for these witnesses, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
And with that, again, I thank you so very much, and this
hearing is adjourned.
[Whereupon, at 2:54 p.m., the hearing was adjourned.]
A P P E N D I X
June 29, 2022
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