Economic Proposals Regarding Housing Affordability Compared

• Not too long ago, the 30-year Freddie Mac mortgage rate dropped to 6.35%, the lowest since May 2023. This decline is consistent with forecasts of further rate decreases by the Federal Reserve and the stabilization of 10-year Treasury yields at approximately 3.8%.

• Rate cuts by the Fed of 25 basis points are anticipated in September, November, and December of 2024. However, it is unlikely that mortgage rates will significantly drop without strong negative economic indications.

• Although there won't be much of a rate drop in 2024, buyers can still potentially cut their mortgage rate by up to 150 basis points by raising their credit scores, looking for better offers, and increasing their down payment.

Our objective here is to explore issues on all sides, as a real estate investor (or future investor) you should become comfortable with the policies that are out there. Affordable housing has become a hot topic, with both political candidates addressing it. At the recent Democratic National Convention, the issue took center stage, highlighting its importance in the current political landscape.

When Did The Affordability Issue Begin

Speculation suggests that the roots of today's housing challenges trace back to the 2008 Great Financial Crisis. The U.S. residential construction workforce has been a key player in this ongoing issue, with recent contributions exacerbating the situation. Adding to the complexity, the COVID-19 pandemic has caused significant supply chain disruptions, further straining the housing market. High mortgage rates have kept homeowners locked into their existing properties, making it increasingly difficult for new buyers to enter the market.

What Types of Policies Will Best Benefit the Country?

According to Dennis Shea, Executive Director at the J. Ronald Terwilliger Center for Housing Policy at the Bipartisan Policy Center, these are some of the policies that we see today:

Regulatory Reform

• Regulatory Reform involves revising, streamlining, or eliminating existing regulations to enhance their efficiency and effectiveness.

• To achieve the Regulatory Reform we will need to look towards Subsidies, such as low-income housing tax credits, to incentivize developers and investors to build and rehabilitate properties that provide affordable, rent-restricted housing for low-income households.

• Statistically, it has been around since 1986 and has built about 3.7 million affordable rental units.

Land Use and Zoning Reform

• A lot of housing is a local issue, and more and more communities will come down to land use and zoning reform to allow greater housing density in their communities so that people can live there. Both in red and blue states. 

Where Do the Political Parties Leave Us in Terms of Housing?

Harris Campaign

• Called for the construction of 3 million new homes. 

  • The expansion of LIHTC aims to offer greater incentives for private investors to develop affordable rental housing.

  • The Housing Initiative Fund, as outlined in the press release, appears to involve federal funds being allocated to local governments to provide incentives for housing development.

• Neighborhood investment enactment, which creates a tax credit like low-income housing tax credit in distressed communities.

• $40B innovation fund to provide incentives for communities to innovate and generate more creation for their community.

• Demand Side Initiative of $25,000 in down payment assistance and perhaps even more for first-time home buyers and first-generation buyers.

From an economic perspective, increasing demand without a corresponding increase in supply could potentially drive up home prices. While a $25,000 credit may provide immediate financial relief, its impact on long-term affordability is uncertain, as it could contribute to higher home prices and overall costs.

Trump Campaign

• The Trump campaign isn’t as detailed but emphasizes improving housing affordability, focusing on reducing mortgage rates by curbing inflation.

• Proposes opening up portions of federal land for new home construction.

• With his background as a developer, the approach likely involves building more housing while working to reduce inflation.

One of Trump's main proposals includes rolling back zoning laws to protect single-family zoning, which could limit the construction of multi-family housing units in suburban areas. This approach aligns with his broader philosophy of reducing government intervention in housing markets, which he claims would benefit homeowners.

However, many experts argue that these policies would likely exacerbate the housing shortage, particularly for low-income families, by making it harder to build affordable housing in areas where it's most needed.

How Affordability Impacts Investors

The lack of access to affordable housing has impacted labor mobility and economic growth. More people will have the ability to move closer to jobs because they have more access to affordable housing.

The linkage between greater access to affordable housing, labor mobility, and economic growth. Many people who are benefiting by the appreciation have children and they will need to find a place to live for the kids.

Douglas Development Acquires D.C. Building

An affiliate of Douglas acquired the 138,000-square-foot building at 701 Eighth Street NW from an affiliate of Voya Investment Management for $34.3 million. The property, known as The Portrait Building, was transferred from Clarion Partners to Voya in lieu of foreclosure in May.

Link to learn more.