- Email: [email protected]
Introduction: Special issue on housing policy in the United States
Journal of Housing Economics xxx (2014) xxx–xxx
Contents lists available at ScienceDirect
Journal of Housing Economics journal homepage: www.elsevier.com/locate/jhec
Introduction: Special issue on housing policy in the United States Raphael Bostic a, Ingrid Gould Ellen b,⇑ a b
Sol Price School of Public Policy, University of Southern California, United States Wagner School of Public Service, New York University, United States
a r t i c l e
i n f o
Article history: Available online xxxx Keywords: Housing policy Homeownership Subsidized housing
a b s t r a c t The recent housing crisis has spawned much reflection among academics, practitioners and policy-makers regarding both the causes and the consequences of this upheaval, especially in the market for owner-occupied homes. But many questions remain. This special issue of the Journal of Housing Economics features a series of articles that seeks to answer some of these questions, with attention given to both the ownership and rental markets. We hope the nine articles in this issue help to provide some insights for both policy makers and researchers. Ó 2014 Published by Elsevier Inc.
The housing crisis that began in 2006 was unprecedented in the history of the United States. After decades of stability and steady growth built upon institutions and products created in response to the Great Depression, prices fell precipitously across the country, with declines of greater than 30% on a national level and more than 50% in some of the hardest hit markets. These reductions in value created great disruption. Millions of homeowners fell into negative equity positions, erasing years of wealth building for many families, and foreclosure rates in some cities reached levels not seen since the Great Depression, threatening to undermine quality-of-life in the worst hit neighborhoods. Meanwhile renters have been under severe stress too. Contrary to the expectations of many economists, the decline in prices for ownership housing and the spike in foreclosures in the late 2000s did not soften rental markets. Rather, rents remained steady or even rose, while incomes for low- and moderate-income households stagnated. As a result, the number of low- and moderate-income households paying very large shares of their income on rent is larger than it has been in decades. In ⇑ Corresponding author. E-mail address: [email protected] (I.G. Ellen).
addition, the fiscal pressures that federal, state and local governments are facing make it all the more challenging for policy makers to address these problems. This crisis has spawned much reflection among academics, practitioners and policy-makers regarding both the causes and the consequences of this upheaval, especially in the market for owner-occupied homes. But many questions remain. This volume features a series of articles that seeks to answer some of these questions, with attention given to both the ownership and rental markets. We hope the nine articles in this issue help to provide some insights for both policy makers and researchers. The first five papers in this special issue of The Journal of Housing Economics concern policies related to homeownership and mortgage lending in the United States. There has been considerable debate as to the causes of the crisis, with a particular focus on the causes of the rapid rise in prices that was observed. Barakova et al. (2014) examine this question and focus on the proposition that it was a departure from the long-standing relationships regarding underwriting and access that had prevailed in the industry. In their paper ‘‘Borrowing constraints during the housing bubble,’’ they examine this question by looking at how homebuyer wealth, credit, and income constraints evolved
http://dx.doi.org/10.1016/j.jhe.2014.02.001 1051-1377/Ó 2014 Published by Elsevier Inc.
Please cite this article in press as: Bostic, R., Ellen, I.G. Introduction: Special issue on housing policy in the United States. J. Housing Econ. (2014), http://dx.doi.org/10.1016/j.jhe.2014.02.001
2
R. Bostic, I.G. Ellen / Journal of Housing Economics xxx (2014) xxx–xxx
from 2003 to 2007. They find that both credit and income constraints became less binding on households seeking to attain homeownership over the period, while wealth constraints maintained their relative importance. This research thus adds important nuance to the widespread observation that lending standards weakened by demonstrating the effects of this weakening on homeownership did not occur across the board. Another popular argument regarding the causes of the crisis is that government regulation was an important culprit. Moulton (2014) explores whether there is evidence to support this view for the 1992 Federal Housing Enterprise Financial Safety and Soundness Act in his paper, ‘‘Did affordable housing mandates cause the subprime mortgage crisis?’’ This Act mandated that the GSEs help to facilitate the financing of housing for low- and moderate-income families, which the U.S. Department of Housing and Urban Development implemented by requiring that a certain percentage of the mortgages that Fannie Mae and Freddie Mac purchase be to low- and moderate-income families and families living in underserved neighborhoods. Using loan application data from the Home Mortgage Disclosure Act, the paper examines the link between the affordable housing goals and relaxed mortgage market standards. The results suggest that affordable housing goals had only a very modest effect on the probability that a loan application was originated, that an originated loan was purchased by a GSE, or that an originated loan was a subprime loan. Moulton concludes that the 1992 Act’s affordable housing goals had a minor effect, if any, on the current mortgage market crisis. The housing crisis placed stress on institutions of all types. One of those most affected was the federal government’s Federal Housing Administration (FHA). Courchane et al. (2014) describe and assess the trends in the FHA’s activity from before the crisis through the end of the crisis and beyond, in their article, ‘‘The downs and ups of FHA lending: The government mortgage roller coaster ride.’’ They document the FHA’s contraction through the height of the housing run-up and its subsequent significant growth through the depth of the crisis, and find that the FHA played important counter-cyclical role in maintaining mortgage origination volumes. Their conclusion is that this episode highlights the tension between promoting the expansion of access to homeownership through mortgage lending and limiting taxpayer exposure to risk and potential losses. They predict a renewed debate on this issue, but are unclear whether a new balance will be established and, if so, where. The other two homeownership-related papers in the volume look at responses to the crisis. Russell et al. (2014) consider the response of homeowners facing distress as a result of falling house prices in their paper, ‘‘Take-up of mortgage assistance for distressed homeowners: The role of geographic accessibility.’’ The authors look at the use of housing counseling and ask a basic first-order question regarding its efficacy: what factors affect whether homeowners access available counseling at all? Using the experience of Ohio’s counseling program run under the federal government’s Hardest Hit Fund, the authors find that few who are eligible actually apply to participate in
the mortgage assistance program, but that proximity to a mortgage assistance intake center is associated with a significant increase in the likelihood that a homeowners applies for the program. They argue that this suggests more attention be given to the logistics design of the service delivery. The fifth paper asks if the existence of institutions has an influence on the diffusion of effects beyond the immediate homeowner in distress. In their paper ‘‘Do homeowner associations mitigate or aggravate negative spillovers from neighboring homeowner distress?’’, Cheung et al. (2014) ask this question in the context of homeowner associations, which cover an increasing share of single-family homes in the United States. The predicted effects are ambiguous, as homeowner associations may be able to identify distressed homeowners earlier and to provide assistance, thereby reducing negative spillovers, or properties in homeowner associations may be more vulnerable to their neighbors’ financial distress because of their reliance on pooled funds for service provision, which would result in larger negative spillovers. The authors here shed empirical light on this question by comparing how foreclosures and delinquencies affect the value of neighboring homes within and outside of homeowner associations in Florida. They find that spillover effects are generally more modest in communities covered by homeowner associations. The remaining four papers in the issue focus on rental housing. Newman and Holupka (2014) address the affordability of rental housing, and how affordability affects the well-being of children in their paper, ‘‘Housing affordability and the well-being of children.’’ Specifically, the authors use the Consumer Expenditure Survey to explore how housing affordability affects the amount that parents spend on enrichment activities for their children. Using propensity score matching, they find an inverted u-shaped relationship between housing cost burden and parental spending, after controlling for parental income, indicating that expenditures on children’s enrichment activities are lowest when the fraction of income spent on housing is either very high or very low. While the magnitude of effects are not large, this is an important finding, as surprisingly little research explores how the affordability of housing matters, and yet our rental housing policy is premised on the idea that renters should not pay more than 30% of their income on housing. If enhancing affordability is a fundamental goal of federal rental housing policy, so is reducing homelessness. The past decade has seen a tremendous advancement of our understanding of homelessness and its causes, which has led to the enactment of a set of new policies. One new emphasis – the prevention of entry into homelessness – in addition to questions about its direct effectiveness also has potential implications for providers of homeless services. Depending on which families are kept out of homelessness from these efforts, the resulting homeless population could need either a greater, lesser, or the same intensity and type of service. Using data from a pilot program in New York City called Homebase, Goodman et al. (2014) directly test one aspect of this – whether homeless spell lengths change with the introduction of a homeless prevention program. Their article, ‘‘How effective
Please cite this article in press as: Bostic, R., Ellen, I.G. Introduction: Special issue on housing policy in the United States. J. Housing Econ. (2014), http://dx.doi.org/10.1016/j.jhe.2014.02.001
R. Bostic, I.G. Ellen / Journal of Housing Economics xxx (2014) xxx–xxx
homelessness prevention impacts the length of shelter spells,’’ finds no change in spell lengths (though it does reduce the number and presumably mix of households entering shelters), and the authors argue that this implies that the length of time one stays in a shelter is not a function of the seriousness of one’s underlying problem. This is a surprising finding, and one that should no doubt spark more research. Housing programs provide more than shelter. They also provide access to neighborhood amenities and critical services. Most importantly, the location of one’s housing typically determines the schools that children can attend. The Housing Choice Voucher Program was designed to give assisted families a choice of where to live. The subsidy is designed to cover part of the rent of the housing units that voucher holders rent in the private market. Horn et al. (2014) examine whether housing choice voucher holders are using their choice to opt for neighborhoods near to high-performing schools in their paper, ‘‘Do housing choice voucher holders live near good schools?’’ Surprisingly, perhaps, the authors find that voucher holders with children live near to schools that are lower performing than other poor households. Further, this pattern is not explained by the location of housing units that charge no more than the fair market rent, or the maximum rent covered by the program. The authors call for more research into how households are making choices about where to live to understand if programmatic constraints are making it more difficult for them to move to neighborhoods with better schools. While the Housing Choice Voucher program is a demand-side subsidy, other federal rental housing programs provide subsidies to private developers to support the creation or renovation of assisted housing. One challenge surrounding these programs is that owners typically have the right to ‘‘opt out’’ of the rent restrictions after a specified number of years. Many local governments try to preserve these properties as affordable housing, but they
3
are handicapped by not knowing which properties are most vulnerable. Begley and Reina (2014) explore the determinants of opting out in their paper, ‘‘Will they stay or will they go? Predicting subsidized housing opt-outs.’’ Using a unique dataset, the authors estimate hazard models to explore why property owners in the Mitchell–Lama program, a New York State affordable housing program, choose to opt out. The results are not surprising. Properties owned by for-profit (rather than nonprofit) developers are more likely to opt out, as are those located in neighborhoods experiencing high levels of appreciation. Notably, the paper also reveals that many of these properties have multiple subsidy sources with different restrictions, underscoring the need to track the expiration date of all the subsidies provided to a property. Although the study is limited to Mitchell–Lama properties in New York City, their findings are relevant for privately-owned subsidized properties around the country as well. References Barakova, I., Calem, P., Wachter, S., 2014. Borrowing constraints during the housing bubble. J. Hous. Econ. 23 (2). Begley, J., Reina, V., 2014. Will they stay or will they go? Predicting subsidized housing opt-outs. J. Hous. Econ. 23 (2). Cheung, R., Cunningham, C., Meltzer, R., 2014. Do homeowner associations mitigate or aggravate negative spillovers from neighboring homeowner distress? J. Hous. Econ. 23 (2). Courchane, M., Darolia, R., Zorn, P., 2014. The downs and ups of FHA lending: the government mortgage roller coaster ride. J. Hous. Econ. 23 (2). Goodman, S., Messeri, P., O’Flaherty, B., 2014. How effective homelessness prevention impacts the length of shelter spells. J. Hous. Econ. 23 (2). Horn, K., Ellen, I.G., Schwartz, A., 2014. Do housing choice voucher holders live near good schools? J. Hous. Econ. 23 (2). Moulton, S., 2014. Did affordable housing mandates cause the subprime mortgage crisis? J. Hous. Econ. 23 (2). Newman, S., Holupka, S., 2014. Housing affordability and the well-being of children. J. Hous. Econ. 23 (2). Russell, B., Moulton, S., Greenbaum, R., 2014. Take-up of mortgage assistance for distressed homeowners: the role of geographic accessibility. J. Hous. Econ. 23 (2).
Please cite this article in press as: Bostic, R., Ellen, I.G. Introduction: Special issue on housing policy in the United States. J. Housing Econ. (2014), http://dx.doi.org/10.1016/j.jhe.2014.02.001
Contents lists available at ScienceDirect
Journal of Housing Economics journal homepage: www.elsevier.com/locate/jhec
Introduction: Special issue on housing policy in the United States Raphael Bostic a, Ingrid Gould Ellen b,⇑ a b
Sol Price School of Public Policy, University of Southern California, United States Wagner School of Public Service, New York University, United States
a r t i c l e
i n f o
Article history: Available online xxxx Keywords: Housing policy Homeownership Subsidized housing
a b s t r a c t The recent housing crisis has spawned much reflection among academics, practitioners and policy-makers regarding both the causes and the consequences of this upheaval, especially in the market for owner-occupied homes. But many questions remain. This special issue of the Journal of Housing Economics features a series of articles that seeks to answer some of these questions, with attention given to both the ownership and rental markets. We hope the nine articles in this issue help to provide some insights for both policy makers and researchers. Ó 2014 Published by Elsevier Inc.
The housing crisis that began in 2006 was unprecedented in the history of the United States. After decades of stability and steady growth built upon institutions and products created in response to the Great Depression, prices fell precipitously across the country, with declines of greater than 30% on a national level and more than 50% in some of the hardest hit markets. These reductions in value created great disruption. Millions of homeowners fell into negative equity positions, erasing years of wealth building for many families, and foreclosure rates in some cities reached levels not seen since the Great Depression, threatening to undermine quality-of-life in the worst hit neighborhoods. Meanwhile renters have been under severe stress too. Contrary to the expectations of many economists, the decline in prices for ownership housing and the spike in foreclosures in the late 2000s did not soften rental markets. Rather, rents remained steady or even rose, while incomes for low- and moderate-income households stagnated. As a result, the number of low- and moderate-income households paying very large shares of their income on rent is larger than it has been in decades. In ⇑ Corresponding author. E-mail address: [email protected] (I.G. Ellen).
addition, the fiscal pressures that federal, state and local governments are facing make it all the more challenging for policy makers to address these problems. This crisis has spawned much reflection among academics, practitioners and policy-makers regarding both the causes and the consequences of this upheaval, especially in the market for owner-occupied homes. But many questions remain. This volume features a series of articles that seeks to answer some of these questions, with attention given to both the ownership and rental markets. We hope the nine articles in this issue help to provide some insights for both policy makers and researchers. The first five papers in this special issue of The Journal of Housing Economics concern policies related to homeownership and mortgage lending in the United States. There has been considerable debate as to the causes of the crisis, with a particular focus on the causes of the rapid rise in prices that was observed. Barakova et al. (2014) examine this question and focus on the proposition that it was a departure from the long-standing relationships regarding underwriting and access that had prevailed in the industry. In their paper ‘‘Borrowing constraints during the housing bubble,’’ they examine this question by looking at how homebuyer wealth, credit, and income constraints evolved
http://dx.doi.org/10.1016/j.jhe.2014.02.001 1051-1377/Ó 2014 Published by Elsevier Inc.
Please cite this article in press as: Bostic, R., Ellen, I.G. Introduction: Special issue on housing policy in the United States. J. Housing Econ. (2014), http://dx.doi.org/10.1016/j.jhe.2014.02.001
2
R. Bostic, I.G. Ellen / Journal of Housing Economics xxx (2014) xxx–xxx
from 2003 to 2007. They find that both credit and income constraints became less binding on households seeking to attain homeownership over the period, while wealth constraints maintained their relative importance. This research thus adds important nuance to the widespread observation that lending standards weakened by demonstrating the effects of this weakening on homeownership did not occur across the board. Another popular argument regarding the causes of the crisis is that government regulation was an important culprit. Moulton (2014) explores whether there is evidence to support this view for the 1992 Federal Housing Enterprise Financial Safety and Soundness Act in his paper, ‘‘Did affordable housing mandates cause the subprime mortgage crisis?’’ This Act mandated that the GSEs help to facilitate the financing of housing for low- and moderate-income families, which the U.S. Department of Housing and Urban Development implemented by requiring that a certain percentage of the mortgages that Fannie Mae and Freddie Mac purchase be to low- and moderate-income families and families living in underserved neighborhoods. Using loan application data from the Home Mortgage Disclosure Act, the paper examines the link between the affordable housing goals and relaxed mortgage market standards. The results suggest that affordable housing goals had only a very modest effect on the probability that a loan application was originated, that an originated loan was purchased by a GSE, or that an originated loan was a subprime loan. Moulton concludes that the 1992 Act’s affordable housing goals had a minor effect, if any, on the current mortgage market crisis. The housing crisis placed stress on institutions of all types. One of those most affected was the federal government’s Federal Housing Administration (FHA). Courchane et al. (2014) describe and assess the trends in the FHA’s activity from before the crisis through the end of the crisis and beyond, in their article, ‘‘The downs and ups of FHA lending: The government mortgage roller coaster ride.’’ They document the FHA’s contraction through the height of the housing run-up and its subsequent significant growth through the depth of the crisis, and find that the FHA played important counter-cyclical role in maintaining mortgage origination volumes. Their conclusion is that this episode highlights the tension between promoting the expansion of access to homeownership through mortgage lending and limiting taxpayer exposure to risk and potential losses. They predict a renewed debate on this issue, but are unclear whether a new balance will be established and, if so, where. The other two homeownership-related papers in the volume look at responses to the crisis. Russell et al. (2014) consider the response of homeowners facing distress as a result of falling house prices in their paper, ‘‘Take-up of mortgage assistance for distressed homeowners: The role of geographic accessibility.’’ The authors look at the use of housing counseling and ask a basic first-order question regarding its efficacy: what factors affect whether homeowners access available counseling at all? Using the experience of Ohio’s counseling program run under the federal government’s Hardest Hit Fund, the authors find that few who are eligible actually apply to participate in
the mortgage assistance program, but that proximity to a mortgage assistance intake center is associated with a significant increase in the likelihood that a homeowners applies for the program. They argue that this suggests more attention be given to the logistics design of the service delivery. The fifth paper asks if the existence of institutions has an influence on the diffusion of effects beyond the immediate homeowner in distress. In their paper ‘‘Do homeowner associations mitigate or aggravate negative spillovers from neighboring homeowner distress?’’, Cheung et al. (2014) ask this question in the context of homeowner associations, which cover an increasing share of single-family homes in the United States. The predicted effects are ambiguous, as homeowner associations may be able to identify distressed homeowners earlier and to provide assistance, thereby reducing negative spillovers, or properties in homeowner associations may be more vulnerable to their neighbors’ financial distress because of their reliance on pooled funds for service provision, which would result in larger negative spillovers. The authors here shed empirical light on this question by comparing how foreclosures and delinquencies affect the value of neighboring homes within and outside of homeowner associations in Florida. They find that spillover effects are generally more modest in communities covered by homeowner associations. The remaining four papers in the issue focus on rental housing. Newman and Holupka (2014) address the affordability of rental housing, and how affordability affects the well-being of children in their paper, ‘‘Housing affordability and the well-being of children.’’ Specifically, the authors use the Consumer Expenditure Survey to explore how housing affordability affects the amount that parents spend on enrichment activities for their children. Using propensity score matching, they find an inverted u-shaped relationship between housing cost burden and parental spending, after controlling for parental income, indicating that expenditures on children’s enrichment activities are lowest when the fraction of income spent on housing is either very high or very low. While the magnitude of effects are not large, this is an important finding, as surprisingly little research explores how the affordability of housing matters, and yet our rental housing policy is premised on the idea that renters should not pay more than 30% of their income on housing. If enhancing affordability is a fundamental goal of federal rental housing policy, so is reducing homelessness. The past decade has seen a tremendous advancement of our understanding of homelessness and its causes, which has led to the enactment of a set of new policies. One new emphasis – the prevention of entry into homelessness – in addition to questions about its direct effectiveness also has potential implications for providers of homeless services. Depending on which families are kept out of homelessness from these efforts, the resulting homeless population could need either a greater, lesser, or the same intensity and type of service. Using data from a pilot program in New York City called Homebase, Goodman et al. (2014) directly test one aspect of this – whether homeless spell lengths change with the introduction of a homeless prevention program. Their article, ‘‘How effective
Please cite this article in press as: Bostic, R., Ellen, I.G. Introduction: Special issue on housing policy in the United States. J. Housing Econ. (2014), http://dx.doi.org/10.1016/j.jhe.2014.02.001
R. Bostic, I.G. Ellen / Journal of Housing Economics xxx (2014) xxx–xxx
homelessness prevention impacts the length of shelter spells,’’ finds no change in spell lengths (though it does reduce the number and presumably mix of households entering shelters), and the authors argue that this implies that the length of time one stays in a shelter is not a function of the seriousness of one’s underlying problem. This is a surprising finding, and one that should no doubt spark more research. Housing programs provide more than shelter. They also provide access to neighborhood amenities and critical services. Most importantly, the location of one’s housing typically determines the schools that children can attend. The Housing Choice Voucher Program was designed to give assisted families a choice of where to live. The subsidy is designed to cover part of the rent of the housing units that voucher holders rent in the private market. Horn et al. (2014) examine whether housing choice voucher holders are using their choice to opt for neighborhoods near to high-performing schools in their paper, ‘‘Do housing choice voucher holders live near good schools?’’ Surprisingly, perhaps, the authors find that voucher holders with children live near to schools that are lower performing than other poor households. Further, this pattern is not explained by the location of housing units that charge no more than the fair market rent, or the maximum rent covered by the program. The authors call for more research into how households are making choices about where to live to understand if programmatic constraints are making it more difficult for them to move to neighborhoods with better schools. While the Housing Choice Voucher program is a demand-side subsidy, other federal rental housing programs provide subsidies to private developers to support the creation or renovation of assisted housing. One challenge surrounding these programs is that owners typically have the right to ‘‘opt out’’ of the rent restrictions after a specified number of years. Many local governments try to preserve these properties as affordable housing, but they
3
are handicapped by not knowing which properties are most vulnerable. Begley and Reina (2014) explore the determinants of opting out in their paper, ‘‘Will they stay or will they go? Predicting subsidized housing opt-outs.’’ Using a unique dataset, the authors estimate hazard models to explore why property owners in the Mitchell–Lama program, a New York State affordable housing program, choose to opt out. The results are not surprising. Properties owned by for-profit (rather than nonprofit) developers are more likely to opt out, as are those located in neighborhoods experiencing high levels of appreciation. Notably, the paper also reveals that many of these properties have multiple subsidy sources with different restrictions, underscoring the need to track the expiration date of all the subsidies provided to a property. Although the study is limited to Mitchell–Lama properties in New York City, their findings are relevant for privately-owned subsidized properties around the country as well. References Barakova, I., Calem, P., Wachter, S., 2014. Borrowing constraints during the housing bubble. J. Hous. Econ. 23 (2). Begley, J., Reina, V., 2014. Will they stay or will they go? Predicting subsidized housing opt-outs. J. Hous. Econ. 23 (2). Cheung, R., Cunningham, C., Meltzer, R., 2014. Do homeowner associations mitigate or aggravate negative spillovers from neighboring homeowner distress? J. Hous. Econ. 23 (2). Courchane, M., Darolia, R., Zorn, P., 2014. The downs and ups of FHA lending: the government mortgage roller coaster ride. J. Hous. Econ. 23 (2). Goodman, S., Messeri, P., O’Flaherty, B., 2014. How effective homelessness prevention impacts the length of shelter spells. J. Hous. Econ. 23 (2). Horn, K., Ellen, I.G., Schwartz, A., 2014. Do housing choice voucher holders live near good schools? J. Hous. Econ. 23 (2). Moulton, S., 2014. Did affordable housing mandates cause the subprime mortgage crisis? J. Hous. Econ. 23 (2). Newman, S., Holupka, S., 2014. Housing affordability and the well-being of children. J. Hous. Econ. 23 (2). Russell, B., Moulton, S., Greenbaum, R., 2014. Take-up of mortgage assistance for distressed homeowners: the role of geographic accessibility. J. Hous. Econ. 23 (2).
Please cite this article in press as: Bostic, R., Ellen, I.G. Introduction: Special issue on housing policy in the United States. J. Housing Econ. (2014), http://dx.doi.org/10.1016/j.jhe.2014.02.001