After 250 years, there is much to celebrate about housing in the US, and much remains to be learned.
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As the country celebrates its 250th anniversary, many of its residents suffer from an ongoing housing crisis. The cost of basic housing has become unaffordable for so many.
A new Realtor.com report examined the most influential home ownership legislation of the past 250 years to show that the challenges facing the housing market today are not new and that the federal government has as much ability to create change today as it has in the past.
“At many major turning points in this country’s history, from the Great Depression, World War II, the Civil Rights era to the financial crisis, Congress stepped in and changed who could own a home and how they could afford it. The story is remarkably consistent: legislation works,” said Joel Berner, senior economist at Realtor.com in a press release.
The report highlighted five key impacts that have changed home ownership.
Five federal laws affecting housing history
The federal government has many responsibilities, and housing the nation’s residents is usually handled at a more local level, but five federal laws have made a definite difference in the nation’s 250-year history.
First was the Homestead Act of 1862 which granted 160-acre plots to anyone who was the head of a family or 21 years of age and could pay the filing fee. After five years, the land would be assigned to that filer free and clear if they had resided there during that time and improved it.
The act helped develop an area of the U.S. which had not yet been settled – extended to 270 million acres in 30 states. It democratized home ownership by not relying on existing wealth and allowing grantees to earn their home with their own time and labor, minus the fact that land was taken from Native Americans.
Then there was the National Housing Act of 1934 to handle the rising amounts of mortgage defaults as the depression continued. With this challenge, the Federal Housing Association was formed to insure mortgage loans from banks to encourage more lending. The law also changed the terms of conventional mortgages, so down payments increased from 30 or 50% to just 10% and repayment from 10 to 30 years.
Government-insured mortgages provided market stability and increased the availability of financing for the construction and purchase of homes. And, while home ownership declined after the law was passed, it would have declined much more without it. It still has a presence in today’s mortgage market, along with some challenges.
The next act was the 1944 Service Readjustment Act, or GI Bill, after World War II that gave veterans a low-interest, no-money-down home loan. The guarantee made veterans safer investments for banks, as the government would return either 50% of the loan or $2,000 if the recipient defaulted. These loans could pay for the purchase, construction or improvement of a property.
The GI Bill boosted home ownership from 43.6% in 1940 to 61.9% in 1960. This government subsidy program offered low-cost financing for a home purchase at a time of need.
In 1968, the Fair Housing Act prohibited discrimination in the sale, rental, and financing of housing based on race, color, national origin, religion, sex, marital status, and disability. The law outlawed housing discrimination by redlining, the practice of denying mortgage and home improvement loans to applicants in minority neighborhoods.
With expanded access to credit, home ownership included more minority groups and rose by 1980. Home ownership for Black Americans fell from 38% in 1960 to 44% in 1980.
The final act from the Realtor.com report is the Housing and Economic Recovery Act (HERA) of 2008, which was a collection of reforms to try to stop home prices from falling after lenders took on too much risk. The bill expanded access to FHA loans by raising loan limits and creating a formula that allowed them to increase over time with home prices. It also fixed 3.5% as the minimum down payment, up from 3% and gave first-time buyers a tax credit.
The most influential aspect of the act was bringing Fannie Mae and Freddie Mac under state conservatorship, which prevented their collapse. Overall, HERA did more to stabilize housing than to expand ownership.
These lessons provide a strong foundation for future progress in a housing market that is once again in desperate need of reform.
Future housing opportunities
Realtor.com focused on bills that subsidize homeownership, expand access to credit and ensure stability and liquidity in the mortgage market, but says today’s market is challenged by supply, suggesting what we need is to build more homes.
A senior community development bank relationship manager with years of experience in the industry shared some ideas that are also worth considering since the country’s leadership has stopped providing housing support.
In keeping with the anniversary theme, he proposes a $250 billion mortgage bond lottery for starter homes that would sell for less than $250,000 in 250 counties. A national bank was able to do this with frontier farming settlements in the Midwest and West.
Alternatively, a revitalization of the Homestead Act could help overcome major financial and regulatory hurdles in some areas. One way to do that would be to identify tax-forfeited land or properties in 250 economically distressed or growing rural and suburban counties that would be offered at little or no cost to developers or first-time buyers. Related bond funds could be distributed as low-interest loans to builders or direct down payment assistance to income-qualified buyers.
Another way would be to incentivize large private equity and pension funds to take on new housing with any initial losses absorbed by government guarantees.
“The national average starter home is currently just under $200,000, but in many of the nation’s economic hubs, entry prices are in the seven figures,” he said. “Therefore, we will need to implement off-site modular structures, create standardized models, prefabricated or modular homes, or manufactured homes to reduce traditional construction costs.”
While zoning and permitting remain under local control, the federal government can influence policies with grant money tied to more effective and efficient processes.
Builders aren’t the only ones who can affect change. A segment of the recent USA Today documentary, America 250called The Future of American Buildingfocused on innovation in building materials to meet the needs of homeowners and builders, and, LP Building Solutions.
Today, as the US faces ongoing housing supply challenges and an aging housing stock, LP continues to focus on developing products that help improve home performance, durability and efficiency. It is one of more than 250 products that could be advanced to offer new solutions.
How differently the past affects the future of the home and the rate at which it evolves is up to the buyers and the owners themselves. Better to say, it will be dictated by demand and the levers that control demand. This weekend we will celebrate 250 years and look forward to exciting changes in housing over the next 250.
