But Cisneros says that during the boom, homeownership levels got too high. A meltdown was inevitable, with low interest rates, predatory lenders, shoddy underwriting, exotic Wall Street financial instruments, and aloof rating agencies contributing to the demise of the housing market. “People who had no interest in housing came in,” Cisneros says. “They saw an opportunity to move mortgages. You put that together, and that was the witch’s brew that caused the problems.”
The Rise of Rental
At the end of the day, what the housing boom of the 2000s did was take people who should have always remained renters and gave them mortgages. That pushed a historically stable homeownership rate in the low- to mid-60 percent to almost 70 percent. Now, as those people (along with the others who were collateral damage of the economic collapse caused by those bad mortgages) have once again become renters, the home-ownership rate has drifted to 66.9 percent as of November 2010 and continues to head south.
The big question now: Where will that number land? Some, like John McIlwain, senior resident fellow at ULI, a Washington, D.C.-based nonprofit education and research institute with a focus on land use, says the homeownership rate could go as low as 60 percent. Others predict it will bottom out in the mid-60 percent. But no one has a firm idea of where it will land.
The Affordability Conundrum
Even with an administration that’s more sensitive to affordable housing concerns, many affordable housing advocates would like to see more.
Ron Terwilliger, former chairman of Dallas-based multifamily builder and owner Trammell Crow Residential (TCR) and creator of the Urban Land Institute’s J. Ronald Terwilliger Center for Workforce Housing, noted earlier this year that 19 million Americans spend at least 50 percent of their income on housing. “I think the federal government, as well as state and local governments, have a role to play,” Terwilliger says.
Linda Couch, senior vice president for policy at the National Low Income Housing Coalition (NLIHC), a Washington, D.C.-based advocacy group, says affordable housing has made some gains under Obama with $4 billion for public housing in the first recovery bill and money for homelessness prevention in the Neighborhood Stabilization Act. The NLIHC has advocated that the government capitalize on the National Housing Trust Fund, double the housing voucher program over the next 10 years, and take a closer look at renters affected by foreclosure.
NLIHC would like to modify the Mortgage Interest Deduction program by making it a credit and lowering the cap on the mortgage that’s eligible in order to then redistribute some of those dollars to the National Housing Trust Fund and the Housing Choice voucher program.
“People would be hard-pressed to argue that a homeowner is more deserving of a federal housing subsidy than someone sleeping under a bridge,” Couch says.
With the focus on the deficit, however, some programs could be in jeopardy. The National Association of Home Builders (NAHB) has also harbored some concerns that the budget cutters may find dollars in the Low- Income Housing Tax Credit (LIHTC) program—another mechanism for producing housing. But a number of developers and affordable advocates think that with tweaks such as increasing the carryback period, addressing accounting issues, and possibly even opening a secondary market, the LIHTC program can be saved.
“While clearly it’s not working as much as people would like, the general sense is that LIHTC probably works better than most programs,” says Peter Donovan, senior managing director of Los Angeles-based commercial real estate firm CB Richard Ellis.
Excess housing is one factor. In 2006, Arthur C. Nelson, now at the University of Utah, estimated in the Journal of the American Planning Association that there will be 22 million unwanted large-lot suburban homes by 2025. Meanwhile, Washington, D.C.-based think tank The Brookings Institution says that 77 percent of Millennials (those aged 15 to 32) plan to live in America’s urban cores. “The homeownership society ran its course,” Campo says. “Over the next three to five years, you’ll see more migration to rental.”
With Gen Yers entering the market, foreclosures persisting, and lending standards tightening, the tides seem to be shifting to the rental sector. “[The homeownership rate] may dip down lower than that and then come back over time,” says Doug Bibby, president of the Washington, D.C.-based National Multi Housing Council (NMHC), a trade association that advocates for the apartment industry. “It’s harder to qualify for a loan and harder to accumulate the money you need to buy a home, especially if you’re a Gen Yer or an immigrant.”
And if Gen Yers do indeed want a greener lifestyle near the city, multifamily rentals (especially with little to no condos being built the past couple of years) are poised to take advantage of that trend. For instance, in a recent report, The Brookings Institution says that 10 years ago, suburban Great Falls, Va., had the highest property value per square foot in the Washington, D.C., metro. Now the report says that walkable Dupont Circle has the highest property value, followed by transit-oriented locales such as Bethesda, Md., and Arlington, Va.
“Our products are greener,” Campo says. “We’ve been pounding on them forever that [single-family] causes suburban sprawl, and we don’t.”
