Posts filed under 'Housing'
Our compassionate Sen. John Kerry is at it again, in behalf of the demographic he professes to understand so well – the middle class.
The multi-millionaire Massachusetts senator is complaining that the federal lending rules created to prevent another mortgage meltdown will prevent middle-class, credit-worthy borrowers from buying a home.
What he dislikes in particular is a proposed regulation that would require some homebuyers to make a down payment of 20 percent to qualify for a low-interest loan.
In a letter to Shaun Donovan, secretary of the US Department of Housing and Urban Development; Federal Reserve chairman Ben S. Bernanke; and Sheila C. Bair, head of the Federal Deposit Insurance Corp., Kerry wrote, “None of us — and none of you — want (sic) to see reform create an onerous unintended consequence: keeping middle-class families trapped in a cycle of paying rent when, in fact, they could well be paying mortgages.”
He later added, “The notion of a police officer or teacher or firefighter being forced to spend years trying to save the upfront money required for a 20 percent down payment is a daunting prospect.”
Yes, buying a home is a serious investment, and people used to expect to have to save for years to afford it. They didn’t think of it as daunting, they thought of it as reality. Kerry has a very short memory – one of the major reasons for the economic collapse was the instant-gratification philosophy – nobody should have to wait to buy a home.
He is out of touch on several other levels as well. First, these regulations are coming not from heartless Republicans, but a Democratic administration with bipartisan legislative support. The proposed 20-percent down requirement would not apply to everybody – just those getting a financial break, in the form of a low-interest loan. And the reason is a good one – to make sure that both the lender and the borrower have some significant skin in the game.
Second, while Kerry talks about unintended consequences, his recommendation could create them as well. If the market is allowed to function without the kind of interference Kerry proposes, housing prices will drop to more affordable levels, and people will start to buy. If lending and underwriting standards are relaxed, prices will shoot right back up to artificially high levels.
Finally, Kerry’s disconnect from the real middle class would be funny if he wasn’t a high-level government official.
Perhaps teachers fit that category, but cops and firefighters who have been on the job more than five years are very much upper-middle. Check the income of municipal workers in your community. Public safety workers are always at the top, many of them well into six figures. If they are disciplined at all with their money, they can save enough to put 20 percent down on a reasonable house sooner than most of their private-sector peers.
They are among those least affected by the recession, and they don’t need extra help from their senator.
Yes, cutting the 20-percent down requirement to 15 or even 10 percent is not going to lead immediately to another meltdown. But it is a step in the wrong direction. And that’s how we got in trouble before – one small step at a time.
June 3rd, 2011
Today’s Globe has an article on a little-known provision of the American Recovery and Reinvestment Act, otherwise known as the federal stimulus bill. The provision allows cities and towns to shift ownership of certain subsidized housing units to the federal government, as long as the units are in good condition.
Doing so would obviously help in the short run to take the strain off of state and municipal budgets and in the long run help funnel more capital investment to the upkeep of the units themselves, something, at least according to the state’s Department of Housing and Community Development, the feds have a greater fiscal capacity to achieve.
Now, I don’t know whether this is a good or bad idea. My complaint, and hence my blog, is not about that. It is about the contrasting reactions of officials in Boston and Worcester.
Worcester Housing Authority executive director Raymond Mariano’s reaction was:
There’s a huge incentive for housing authorities to do this. We need at least to consider it, especially for large authorities like Worcester’s.
BHA administrator Bill McGonagle’s reaction was:
I view this as nothing short of the Commonwealth abandoning its moral and legal responsibilities for the thousands of poor, elderly, and disabled folks living in state public housing.
Not, we’ll look at it. Not, we’ll consider it. Not, we’ll study it. No, a simple, reflexive, we’re not going to do that, the same reaction that seems to emanate from Boston’s City Hall any time a new idea is put on the table, from joining the GIC, to creating a 311 call system, to exploring ways to increase capital investment in the city’s subsidized housing stock.
Not every provision tucked into a federal bill or idea floated by a policy think tank like ours truly is a good one, but we can’t be so afraid of new ideas that we don’t at least explore the possibility that one or two of them just might be.
July 27th, 2009
The Globe this week ran successive stories (here and here) regarding Boston’s new computer tracking system for city services.
In this morning’s article, the three candidates challenging Mayor Menino were unsurprisingly critical of the new system – that it took too long to get up and running, that it still isn’t a true CitiStat program like the one Somerville uses and Baltimore pioneered, that posting the data to the Boston About Results website every quarter doesn’t give either residents or city managers real time data.
All of that might be true, but I want to pose some questions of my own.
1) Why does budget data on BAR still only include the appropriations for FY08 and not the actual expenditures? Boston’s FY08 ended on June 30th last year. Does it really take 11 months to post the data? Can we make honest evaluations of spending trends in city government when the last data on expenditures we have according to BAR dates from June 30, 2007?
2) According to BAR, the average number of hours an employee in the city’s transportation department was absent rose from 96 in FY06 to 127 in FY08. (If you’re doing the math, that comes out to more than 15 sick days a year.) The average in the public works department rose from 77 to 107. Yet overtime costs, which were in, according to actual expenditures, 2006 and 2007 almost $4 million, were appropriated in FY08 at less than $2 million. Are we to believe that the city successfully held the line on overtime costs in FY08 in the BTD and PWD despite an increase in absenteeism?
Yes, the city has taken tentative steps to improve management. BAR is one of them. There is still a distance to go, however, before an effective data management system is fully up and running.
May 28th, 2009
I have expressed on here before my, well, I guess my disdain for the politically connected way Fannie Mae and Freddie Mac have operated in the past. One of their primary means for insuring their protection from Congressional oversight was largesse. Fannie Mae and Freddie Mac were huge donors to various (mostly D.C.) non-profits, many of which were connected to one or the other of the major parties or their representatives. This was bad enough when the lending giants’ debt was only guaranteed by the federal government. I had hoped that, having been directly bailed out with taxpayers’ money, this practice would cease.
Well, guess again. However, this time it isn’t the agencies who are at fault. Non-profits, trained to suck on the teat of the federal government, are coordinating efforts through the Center for Nonprofit Advancement to insure that the $47 million Fannie and Freddie donated last year will be available again this year. According to The Chronicle of Philanthropy:
The association is coordinating its second campaign to press Congress to ensure that donations from the lenders don’t dry up in the current economic downturn.
Tomorrow, association members are being asked to e-mail their Congressional representatives about the matter. A similar effort was made in October, which resulted in a letter from six members of Congress to James B. Lockhart II, director of the Federal Housing Finance Agency. Mr. Lockhart is the conservator placed in charge of Fannie Mae and Freddie Mac after the U.S. Treasury Department bailed-out the troubled lenders in September.
Now that there are direct taxpayer dollars in the equation, this is absolutely unacceptable.
November 18th, 2008
Bill Shipman — chairman of CarriageOaks Partners LLC in Manchester-by-the-Sea and co-chairman of the Cato Institute Project on Social Security Choice — advanced an intriguing idea on how to “support housing prices and facilitate the market for toxic securities that ultimately are tied to housing” in a recent Investor’s Business Daily: Suspend the capital gains tax on toxic assets.
No tax on short- or long-term capital gains or other income realized upon sale of the asset through 2013 for any individual or institution that purchases either the distressed real estate or securities collateralized by the real estate. This idea will produce winners and no or few losers.
When the seller would keep all of the proceeds from the sale of a house, because none are taxed, the future value of the house is greater than if it were taxed. The present value, therefore, is also greater.
Stated differently, housing prices rise when taxes are reduced. An individual who has been thinking of investing in distressed real estate may now find the timing right. If he assumes that housing in his market would rebound within five years, he now has an incentive, at the margin, to buy.
Institutions may provide a limited-purpose collective pool, such as a mutual fund, to buy distressed real estate, and then distribute the sales proceeds tax-free within five years. This structure would allow individuals who are not real estate professionals, but who nonetheless find the present housing market now more attractive because of the tax treatment, to easily participate and profit in its rebound. Private capital would enter the market, buy distressed property, and aid in re-establishing the market for housing.
Homeowners who are able to service their mortgage, but who are considering dropping the keys off at the bank, will rethink because their negative equity will shrink. Homeowners who are unable to meet their mortgage responsibilities would also benefit in those cases where the equity flips from negative to positive.
The securities collateralized by the real estate will increase in value as well, for two reasons. The first is that the collateral is now greater, therefore the risk is less. The second is that the gain on the sale of the securities is not subject to tax, therefore increasing the after-tax return to capital. Purchasing these securities from banks, an objective of the legislation just passed, would improve their balance sheets.
Shipman notes two objections he has heard:
The first is that investors would reap a windfall due to the tax treatment. This objection is a confirmation that the idea has merit because no windfall can accrue unless private capital invests.
The second objection is that it would cost the government money in the form of the lost income and capital gains tax. This is a red herring because the private sector isn’t investing, and without investing there can be no gain to tax. From the government’s point of view, not investing, or investing with no tax, yields the same zero revenue.
Elegant solution. Thoughts?
October 20th, 2008
Do you wonder sometimes about the connection between affordable housing and sewage disposal? Land is expensive around here, so if you want to see affordable housing built, you need to allow it on small lots. But leaching fields for septic systems generally take up a lot of land.
As one health official told Pioneer’s researchers, “dilution is the solution to pollution”, meaning the more land you have for a septic system, the more the dirty effluent get diluted before polluting our water supplies. The flip side is, the more land used for housing, the less open space preserved.
Can you put a septic system on a small lot? Can affordable housing be built in communities with no sewers? According to Pioneer’s survey, 53 of the 187 communities within 50 miles of Boston have no homes on sewer. Many more have sewers in just a small part of town.
Pioneer is looking to do more research on the topic (alternative technologies, shared systems, Title 5, local regs, etc.). If you have thoughts on the topic, do let me know. In the meantime, join me at CHAPA’s June 9 event on the challenges and opportunities of building affordable housing where there are no sewers.
Also, check out this conference in Vermont on sewage solutions for small communities.
May 6th, 2008
A little-noticed provision in the housing bond bill, inserted by the Senate and supported by the Patrick administration, will require that all affordable housing projects pay ‘prevailing wage’ on construction.
The article in today’s Globe cites a Mass Housing Partnership study that found such provisions increase costs by 34%.
In the words of a leading housing advocate:
“It’s likely to increase the cost of developing affordable housing significantly,” said Aaron Gorstein, executive director of the Citizens Housing and Planning Association, an affordable housing umbrella group. “It could lead to fewer units being available for low- and moderate-income families.”
April 17th, 2008
Yesterday’s Globe had an article critical of the film tax credit offered by the Commonwealth.
I will say that it has significantly improved the celebrity level of the gossip columns, minimizing the Globe’s Names & Faces section’s embarassing fascination with C-list celebrities eating chinese food at the Kowloon. Wow! John Waite? Pro wrestlers? Wasn’t exactly Page 6 material.
However, the Department of Revenue’s report makes one fact clear — these are temporary jobs:
…the 20 film productions for which tax credits were claimed in calendar year 2006 employed approximately 2,267 individuals, with an average employment duration of 3.2 months, with the employment duration ranging from one week to 12 months. Weighted for the number employed and the duration of employment for particular productions (with large productions receiving a higher weighting than small productions), the average duration of employment was 1.4 months. However, these estimates are not definitive, as it is not currently possible for DOR to independently verify the accuracy of employment figures included in the applications. For the 27 calendar year 2007 film credit applications received thus far, productions employed 1,477 individuals with an average employment duration of 3.7 months, ranging from 1 week to 12 months. Weighted for the number employed and the duration of employment for particular productions, the average duration of employment was 1.7 months.
Rumors abound that a studio may set up full-time shop in Quincy or elsewhere but until then this is not a major employer — approximately 4-5,000 people on average per month.
These employment levels are roughly equivalent to the knifemaking and wholesale plumbing supply businesses in Massachusetts. Except those industries pay 2 – 3x the average weekly wage of the motion picture industry. I’ll watch out for their tax credits, complete with pretty pictures of the stars….
March 28th, 2008
On the LA Times blog today there is a distressing bit of news about the distressed California housing market. Home prices in the state, the blog notes, fell 26 percent (three times the national average) between February 07 and February 08!
–Statewide, median sales prices fell by a stunning 26% in February, with home prices dropping at a rate of nearly $3,000 a week, the California Association of Realtors reports. Further, the CAR says the Fed’s interest rate-cutting campaign “will have little near-term direct effect on the housing market.”
–In the San Fernando Valley, losing a home to foreclosure is now almost as common for families as buying a home. The L.A. Daily News: “During January and February, there were 1,084 foreclosures and 1,335 sales of houses and condos in Valley communities from Glendale to Calabasas, according to the San Fernando Valley Economic Research Center at California State University, Northridge.”
“It’s bad. It’s really bad,” market analyst Nima Nattagh told the Daily News.
We’re lucky. We don’t build houses anymore in Massachusetts (1980s production was around 40,000 units, from 2000-2006 around 20,000-23,000, and currently we are building at an annual rate of about 12,000 to 14,000). Very small increases in supply means that in a recession our housing prices should decline much less than elsewhere. But also expect a sharp upturn in already high prices as soon as consumer confidence comes back.
March 26th, 2008
The Boston Zoning Commission voted yesterday to approve the City Council’s measure to cap students renting off-campus apartments at 4 per unit, without regard to its size. (Read the Globe’s front page article here.) Now I’m sympathetic to what motivated this measure in the first place: I’m pretty sure if my wife and I lived in Allston or Mission Hill, next door to the noise and the revelry, we’d be annoyed as all get up too. Nevertheless, what this measure will most likely not do is bring rental rates in the neighborhoods around the city’s colleges and universities back down to what proponents might call an affordable level. As some of the displaced students would (hopefully, if they paid attention during their Intro to Econ lectures) be able to explain, constricting supply tends to inflate prices, not the other way around.
March 13th, 2008
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