Summary

There is a chronic shortage of housing in the U.S. that is driving up housing prices and making it more difficult for lower-income individuals to find safe, affordable housing. Housing production in the U.S. is not keeping pace with expanding housing needs. The underbuilding gap in the U.S. now totals more than 5.5 million housing units. The impact of this growing problem of an under-supply of affordable housing is far-reaching and undermines economic growth—particularly in urban areas.

Key Takeaways

Safe, decent, and affordable housing is critical to the well-being of America’s families, communities, and businesses. The COVID-19 pandemic intensified the nation’s persistent housing crisis and heightened the need to expand the supply of affordable housing.

Having a robust housing finance system is critical to meeting the nation’s longstanding goal of ensuring decent and affordable housing for all. Debate over reforms to the government-sponsored enterprises (GSEs) continues, but no legislative proposals are currently under consideration.

Confronting the housing crisis requires a national transformation in housing policy, including a strategic plan to expand the supply of affordable housing.

Policymakers should look at the full scope of tools available to bridge the underbuilding gap as part of this national strategy, including:

• Yes In My Backyard (YIMBY) policies;

• Property conversion incentives;

• Reforms to zoning and permitting rules;

• Reforms to the GSEs that continue to protect financial stability and access to affordable mortgages;

• Extending and improving Opportunity Zones (OZs);

• Enacting the Housing Affordability Act; and

• Expanding the Low-Income Housing Tax Credit (LIHTC).

RER has partnered with 16 other national real estate organizations to jointly advocate for policies that will help to increase housing supplies, grow jobs, and modernize our nation’s critical infrastructure.

Summary

The U.S. faces a severe shortage of affordable housing. Current production has just not kept up with demand. At the same time, certain other commercial real estate assets like office buildings are under significant stress due to pandemic-related issues, including employers’ greater reliance on remote work arrangements. RER is encouraging lawmakers to help revitalize cities, boost local tax bases, and address housing challenges by enacting a tax incentive and federal loan support for converting older, underutilized buildings to housing. RER also supports a meaningful expansion of the low-income housing tax credit (LIHTC).

Key Takeaways

The LIHTC is an efficient, market-based housing solution that relies on the private sector to finance, build, and operate affordable housing by creating a federal incentive for new construction and redevelopment.

Congress should help expand and grow the supply of affordable and workforce housing by investing greater resources in time-tested tax incentives like the LIHTC and adopting creative new approaches that support the conversion of underutilized, existing buildings to housing.

The conversion of underutilized and often vacant buildings offers a tremendous opportunity to improve the built environment and lift the surrounding locality. Property conversions are a cost-effective means to develop new housing supply, create jobs, and generate critical sources of local property tax revenue.

Summary

In response to the Global Financial Crisis in September 2008, the U.S. Treasury placed Fannie Mae and Freddie Mac into conservatorship under the oversight of the Federal Housing Finance Agency (FHFA). This action was intended to stabilize the mortgage market and restore confidence in the government-sponsored enterprises (GSEs). It also involved an injection of $190 billion of capital, while creating an explicit U.S. government guarantee. The ongoing conservatorship means that the government has total control over these huge government-backed mortgage enterprises, with $7.7 trillion in combined assets.

Conservatorship was not meant to be indefinite. More than 17 years later, the GSEs are in a much stronger financial position and have repaid the $187 billion used to preserve Fannie and Freddie during the financial crisis. Yet, retiring the government’s preferred and common equity stake would require a refinancing of massive scale, a taxpayer gift from the U.S. Treasury of tens of billions of dollars to Fannie and Freddie, or both.

Policymakers have increasingly discussed various reform proposals, including ending the conservatorship, full privatization, hybrid models, and continued government backing with additional safeguards.

As policymakers consider privatization or structural reforms, it is essential to the real estate industry and the broader economy to preserve a well-functioning housing finance system that supports homeownership, expands affordable housing supply, and sustains economic growth.

Key Takeaways

GSE reform will involve transitioning these government-sponsored enterprises to private entities, which necessitates significant recapitalization, potentially through an Initial Public Offering (IPO), to meet regulatory capital requirements and address outstanding liabilities.

As a practical matter, it will be challenging for Fannie and Freddie to exit conservatorship and remain effective in the marketplace without a government guarantee. Determining the cost of this guarantee is one of the key challenges of reform.

An explicit guarantee, similar to Ginnie Mae, might be one solution, but this would likely require an act of Congress and a fee paid to the Treasury for assuming the risk. This could increase costs for underlying borrowers.

If Fannie and Freddie are transitioned to private ownership, the process must ensure financial stability, avoid market disruptions, and protect access to affordable mortgages.

Reforms to the GSEs should be part of a larger national transformation in housing policy to unleash a wave of new housing construction and fully address the underbuilding gap, including Yes In My Backyard (YIMBY) policies, property conversion incentives and reforms to zoning and permitting rules, Opportunity Zones, and the Low-Income Housing Tax Credit (LIHTC).

A federal "YES In My Backyard" (YIMBY) approach when awarding grants to states and municipalities is needed to counter local “Not In My Backyard” (NIMBY) policies that drive up costs and create barriers to the development of affordable housing. A YIMBY approach is also needed to counter burdensome and duplicative federal government reviews that are necessary to obtain real estate development and transportation permits.

Tax-exempt private-activity bonds (PABs) are proven tools to mobilize public and private co-investment in affordable housing. States and cities use PABs to borrow on behalf of private companies and nonprofits, lowering borrowing costs for entities that might otherwise turn to corporate bonds or bank loans. Interest on PABs is not excluded from gross income unless it is a qualified bond, which must meet strict requirements and serve a public benefit—such as affordable rental housing or mortgage provisions for first-time lower-income borrowers.

The Biden administration recently announced federal actions to lower housing costs and boost the supply of affordable housing. As part of this government-wide effort, the General Services Administration (GSA) will identify and market surplus federal properties that represent the best opportunities for commercial-to-residential conversions. The GSA initiative will continue to convene developers, municipalities, and other stakeholders to learn about opportunities and challenges.