Columnist: A Bipartisan Prescription for America's Housing Woes

May 20, 2013

By Neal Peirce

WASHINGTON -- Is there a shadow of a chance that bipartisan middle-ground common sense could be applied to solve pressing issues of America's housing future?

A housing commission formed by the Washington-based Bipartisan Policy Center has a plan, formed over 16 months of debate and released in February. The center now will "take it on the road" for intensive discussions across the country.

The need is indisputable. Precious little has been done to revamp America's housing finance policy in the four and a half years since rampant speculation and malleable regulations triggered the Great Recession.

The Treasury Department did take over the failing housing-finance giants, Fannie Mae and Freddie Mac. But no one thinks this was a good long-term solution. For the most part, the $10 trillion U.S. mortgage market has been left to float unguided.

It's a dangerous course, writ in multibillions. With federal resources short, the country owes itself a robust debate about the exorbitant costs (now close to $100 billion yearly) of the home mortgage tax deduction. Concurrently, it needs to figure out how the United States meets the housing needs of a fast-aging population and does far more to assure affordable shelter for imperiled low-income and minority Americans.

The Bipartisan Policy Center assembled impressive leadership for its housing commission -- on the Democratic side former Housing and Urban Development Secretary Henry Cisneros and former Senate Majority Leader George Mitchell; on the Republican side former HUD Secretary and Sen. Mel Martinez and former Sen. Christopher "Kit" Bond.

The 21 commission members, including homebuilders and bankers to consumer advocates and city housing commissioners, worked to evaluate a virtual deluge of housing reform proposals. In the end, they produced what Julia Stasch of the MacArthur Foundation (which supported the effort) called a "smart, sophisticated, contentious but in the end productive conversation" and final report.

To wind down Fannie and Freddie, both publicly traded companies with implied U.S. government guarantees, the commission suggested phasing in a more limited "Public Guarantor." It would have major power to require that financiers are well-capitalized and have guaranteed funds to cover potential catastrophic losses. But in stark contrast to the federal government's massive bailouts through Fannie and Freddie, the Public Guarantor would pay out rescue funds only under catastrophic conditions, and only after the capital of the big outside investors -- borrowers, private capital enhancers and security issuers -- has been exhausted.

Perhaps most wondrous, even while it lauded the virtues of homeownership, the commission reached agreement that the home mortgage deduction -- its benefits now flowing overwhelmingly to more affluent Americans -- should be eligible for reduction in the context of general tax reform. But there was a proviso, worked out in what must have been tortuous debates with homebuilders at the table, that any funds saved should be channeled to affordable rental housing.

The big reality, the commission noted, is the massive demographic shift now underway in America. Partly it is a rapidly aging population, with the number of Americans 65 and older set to double by 2040, with numbers of those 85 or older more than tripling. The commission called the country "largely unprepared to meet the needs of the overwhelming numbers of seniors who wish to 'age in place' in their own homes."

This means modifying homes for safety, and then "applying universal design principles in the construction of new homes" -- not to mention a massive increase in social service demands communities will face. Yet when seniors elect to sell their homes, they may have difficulty finding buyers unless the new Americans -- Latinos and other minorities projected to constitute a third of U.S. households by 2020 -- are more economically successful.

And there's another reality: the fact that 41 million renter households now account for 35 percent of our total population. And that one segment -- extremely low-income renters -- is obliged to spend a numbing 50 percent or more of their incomes on housing. Today, federal assistance reaches only a fraction -- perhaps a quarter -- of this population. We should transition, the commission urges, to guaranteeing that, at a minimum, the extremely low-income households (at or below 30 percent of median income) receive public support through housing vouchers.

Taking those steps, then channeling more federal aid to help poor renters meet emergencies, would mean the nation was taking a big step toward the "elimination of homelessness -- through production, preservation and rental assistance."

There will be debate about the budget impact of the commission's proposal. But the principle is clear. It's the apportionment, the equity and moving beyond our pattern of subsidizing mostly middle-class suburban housing to meeting the very real needs of a new minority-heavy, more urban America. The good news is that the professional housing community, sitting down to look at the trends and emerging needs, can agree on so much.

Message to the White House and Congress: "Listen!"

Neal Peirce's email address is nrp@citistates.comnlc.

(c) 2013, The Washington Post Writers Group

The opinions expressed in this column are not necessarily those of the National League of Cities.