Hindering Homeownership

Bruce Katz and
Bruce Katz Founding Director of the Nowak Metro Finance Lab - Drexel University
Henry Cisneros
Henry Cisneros Chairman and CEO

May 19, 2004

President Bush has seized on rising homeownership rates as a major contributor to economic revival and social stability this spring. “Homeownership in America is at the highest rate ever,” he said to applause recently in Ardmore, Pa. “It’s a fantastic statement to say that, isn’t it?”

Well yes, it is.

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The president is right to celebrate the good news on homeownership. The nation’s homeownership rate of 68.6 percent has indeed never been higher. Perhaps most encouragingly, homeownership rates have risen for Hispanics and blacks, also to a new—albeit lower— high.

But there’s a problem with Bush’s depictions: Historically low interest rates, rather than federal housing policy, explain this bright spot in the national economy.

Meanwhile, the hard fact is that the Bush administration has talked a lot about housing issues and homeownership, but done very little to advance the cause. Instead, the administration has undermined a slew of policies that make rental housing—the steppingstone to homeownership—more affordable.

The Bush years represent a far cry from even the last Republican administration, when under the elder Bush Housing and Urban Development (HUD) Secretary Jack Kemp engaged in intellectual combat to recast federal responses to housing problems.

On rental housing, Bush & Co. have been out-and-out hostile to the government’s primary housing programs for poor Americans.

The Bush budget now before Congress would, for example, terminate the highly successful effort to demolish and replace dozens of dilapidated and crime-ridden public housing projects. This effort—the HOPE VI program—has sparked the development of a new form of affordable housing that is smaller scale, well-designed, and economically integrated. Significantly, the program has been used in cities like Louisville to boost minority homebuying—the very goal the president says he wants to achieve. But now that is in jeopardy.

The Bush administration has also sought to limit the nation’s Section 8 housing voucher program that helps 2 million households afford rents in the private market. This program, supported by conservative theorists and policymakers for years, is by far the most effective and cost-efficient housing program in the nation’s arsenal. Yet the administration—having failed to convert the program into a block grant—has now told the country’s 2,500 public housing agencies that it would no longer fully fund the vouchers but would cap the federal contribution at the level of August 2003, adjusted for inflation. This stratagem will almost certainly force housing agencies to raise rents or evict tenants, again undercutting the broader goal of helping low-income renters transition to homeownership.

And it gets worse. The Bush budget would also withdraw support of all kinds for working families earning less than $35,000 a year—the very families that struggle to make rent each month, let alone save a few dollars for a downpayment. For example, the current House and Senate budget resolutions will compel deep cuts in a series of programs—Medicaid, supplemental health insurance, nutrition assistance, welfare—that help working families make ends meet and save.

In a word, the Bush administration has done little to ease the housing burdens of renter families and much that will complicate their struggle to become homebuyers.

On homeownership itself, meanwhile, inaction—rather than hostility—has been the watchword.

On this front, the Bush team has promoted three basic initiatives: a new homeownership tax credit to stimulate the production of affordable homes; a new zero-downpayment Federal Housing Administration (FHA) insured mortgage product for first-time homebuyers; and an American Dream Downpayment Act to help low- and moderate-income homeowners put money down.

However, the Bush follow-through on these initiatives leaves much to be desired.

The administration has not made enactment of the homeownership tax credit a priority in any of the three tax cut bills passed by Congress.

The FHA downpayment product is a proposal in this year’s budget, but doesn’t exist yet.

And as for the American Dream Initiative, it comes with an asterix. Funded at $87.5 million, it will serve 17,500 families this fiscal year—helpful, but not sufficient. Yet in a budgetary sleight-of-hand, the “additional resources” for the Dream Accounts come at the expense of other housing programs.

Finally, as if this weren’t enough, the mounting federal budget deficit—enlarged by Bush’s tax policy—threatens to stymie or even sweep away much recent progress on homeownership. The reason: The nation’s huge new deficits are poised to drive interest rates far higher than millions of prospective minority homebuyers can afford.

On housing, then, like on other parts of the domestic agenda, the Bush administration appears to have perfected the art of saying one thing and doing another. Supporting minority homeownership and celebrating homeownership are not the same as taking the hard legislative and administrative steps necessary to make it happen.

Henry Cisneros is the founder of American City Vista, a development company, and a former secretary of the U.S. Department of Housing and Urban Development (HUD). Bruce Katz is a vice president of the Brookings Institution and the former chief of staff at HUD.

NOTE: The published version of this commentary mischaracterized the funding source for American Dream Accounts. That version inadvertently suggested that funding for the accounts was redirected from the HOME program. In fact the funding for the new program comes at the expense of housing programs like HOPE VI that have been dramatically cut.