Zero Downpayment Program Would Harm Hard Working Families and Further Distort Our Unbalanced Housing Policy: Proposal Overlooks Rising Foreclosures and More Pressing Housing Needs
FOR IMMEDIATE RELEASE
June 30, 2005
Contact: Michael Tucker
(202) 974-2360
mtucker@nmhc.org
www.nmhc.org
WASHINGTON, DC -- Establishing a federally insured zero downpayment mortgage program through the Federal Housing Administration (FHA) would likely hurt the very people Congress is trying to aid and would further skew our limited housing resources away from solving the nation’s most pressing problems, the National Multi Housing Council (NMHC) and National Apartment Association (NAA) told Congress today.
In a statement to the House Subcommittee on Housing and Community Opportunity, NMHC/NAA told lawmakers that with FHA foreclosures at an all-time high and talk of housing bubbles increasing, now is not the time to place more hardworking families in jeopardy.
NMHC President Doug Bibby explained that his comments were not based on fears over market share–even if all of the proposed homeownership initiatives are implemented, there will still be more than enough new renters to fill the expected inventory of rental apartments–but rather concern about the growing disconnect between our nation’s housing policy and our housing needs. Every dollar allocated to homeownership incentives is a dollar taken away from other housing programs. And homeownership, while worthy, is not the best tool to solve our most pressing housing needs, including the affordable housing shortage, suburban sprawl and the need to house our aging population.
Bibby also cited the real human costs of adding more homeownership incentives at a time when evidence suggests the homeownership envelope has already been pushed too far:
* Foreclosures of conventional loans are near record-level, and FHA foreclosures are at their highest level ever and are still climbing. (1)
* Home foreclosures in North Carolina nearly tripled between 1998 and 2003, rising from 15,282 filings to 44,213. That’s a 289 percent increase. (2)
* Rising foreclosures are hitting local communities hard. In February 2004, Philadelphia officials temporarily suspended auctions of foreclosed homes after a record 1,120 homes were put up for bid in one week. A housing advocate was quoted as saying "this is the worst time for foreclosures basically since the Great Depression." (3)
* In Indianapolis, clusters of foreclosed homes are emerging. One block of older row houses has 20 vacant homes. FHA repossessions in Indianapolis are growing and are depressing prices in neighborhoods where they are concentrated. The sheriff responsible for Indianapolis reported 5,500 foreclosures in 2002 compared to about 1,000 a year in the mid-1990s. (4)
Many people assume that households with severe cost burdens (i.e., paying more than 50 percent of their income on housing) are renters. But our aggressive homeownership policies are pushing more and more owners into unaffordable situations.
* According to the U.S. Department of Housing and Urban Development (HUD), the only group whose housing conditions worsened between 1999 and 2001 were low- and moderate-income owners, not renters. (5)
* According to Harvard University, twice as many owners than renters pay 50 percent of their income for housing. From 2000 to 2003, the number of lower and lower-middle income homeowners with severe cost burdens grew by more than one million. (6)
Homeownership is more expensive for the very households less able to handle it.
* Lower- and moderate-income households purchase a disproportionately larger share of older housing that depreciates faster and requires more frequent and costly maintenance. (7) Too many people naively think that the "gift" of a downpayment is enough to make successful homeowners. But they fail to consider the true carrying costs of ownership. Experts estimate that it takes another 40 percent of a person’s principal and interest to cover property taxes, property insurance and routine maintenance and repairs.
* They are also more likely to buy in neighborhoods with declining house prices. One study of housing appreciation in Miami showed that appreciation rates are far more volatile over time in low-income and highminority tracts. In many such areas, nominal prices fell while prices in the metro area as a whole rose. (8)
As a result of our aggressive policies, many families find themselves with no cash reserves and just one paycheck away from financial disaster if their incomes decline, their house values fall or expensive repairs are required.
Pushing the homeownership envelope too far not only hurts Americans, it can also damage our communities. While homeownership can play a role in stabilizing neighborhoods, it can only do so if new homeowners are successful.
* If new owners cannot afford to maintain their homes, as is the case with many low-income households, nearby property values will fall. One study estimates that the average sales prices fall $788 for each 1 percent increase in tax delinquencies in a one- to two-block area of residence. (9)
* If families default and abandon their houses, then cities, counties, towns and school districts also lose tax revenue and incur higher costs associated with vandalism and other social problems. One researcher estimated that the average FHA foreclosure costs cities $27,000. (10)
"Most policy makers at all levels operate under the mistaken notion that when it comes to homeownership, more is always better," said Bibby. "But the time has come to ask whether our single-minded pursuit of homeownership is doing more harm than good, especially when it comes to households with limited financial resources and/or weak credit histories.
Bibby’s statement is available at www.nmhc.org/Content/ServeFile.cfm?FileID=4746. Sources for all statistics quoted in this release appear below.
ENDNOTES
- NMHC analysis.
- National Low Income Housing Coalition, "Update From the Field." Memo to Members, May 28, 2004. p. 5.
- Associated Press. "Some Seek Philly Auction Suspension." February 6, 2004. Found at
Page 2 of 4 Zero Downpayment Program Would Harm Families, Ignore More Pressing Housing Needs - NAA 6/5/2008
www.abcnews.com on February 10, 2004.
- Kilborn, Peter T. "Easy Credit and Hard Times Bring a Flood of Foreclosures." November 22, 2002. The New York Times. Found at http://query.nytimes.com/gst/abstract.html?res=F30A11FE3A5D0C778EDDA80994DA404482 on May 7, 2004.
- Trends in Worst Case Needs for Housing, 1978-1999. 2003. Washington, DC: Office of Policy Development and Research. U.S. Department of Housing and Urban Development. Found at www.huduser.org/Publications/PDF/trends.pdf.
- The State of the Nation’s Housing 2005. Boston, MA: Joint Center for Housing Studies of Harvard University.p. 25.
- George McCarthy, Shannon Van Zandt and William Rohe. 2001. The Economic Benefits and Costs of Homeownership: A Critical Assessment of the Research. Washington, DC: Research Institute for Housing America, Mortgage Bankers Association. Working Paper No. 01-02. pp. 6 and 16.
- George McCarthy, Shannon Van Zandt and William Rohe. 2001. The Economic Benefits and Costs of Homeownership: A Critical Assessment of the Research. Washington, DC: Research Institute for Housing America, Mortgage Bankers Association. Working Paper No. 01-02. pp. 26-27.
- Simons, R. A., R. G. Quercia, and I. Maric. 1998. The Value of Residential Construction and Neighborhood Disinvestment in Residential Sales Price. Journal of Real Estate Research 15(1–2):147–61 as cited on page 31 of George McCarthy, Shannon Van Zandt and William Rohe. 2001. The Economic Benefits and Costs of Homeownership: A Critical Assessment of the Research. Washington, DC: Research Institute for Housing America, Mortgage Bankers Association. Working Paper No. 01-02.
- Simons, R. A., R. G. Quercia, and I. Maric. 1998. The Value of Residential Construction and Neighborhood Disinvestment in Residential Sales Price. Journal of Real Estate Research 15(1–2):147–61 as cited on page 31 of George McCarthy, Shannon Van Zandt and William Rohe. 2001. The Economic Benefits and Costs of Homeownership: A Critical Assessment of the Research. Washington, DC: Research Institute for Housing America, Mortgage Bankers Association. Working Paper No. 01-02.
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NMHC and NAA operate a Joint Legislative Program and represent the nation’s leading firms participating in the multifamily rental housing industry. NMHC/NAA’s combined memberships are engaged in all aspects of the development and operation of apartment communities, including ownership, construction, finance and management. Together, the organizations operate a federal legislative program and provide a unified voice for the private apartment industry. Nearly one-third of Americans rent their housing, and almost 15 percent of all U.S. households live in an apartment home. For more information, contact NMHC at 202/974-2300, e-mail the Council at info@nmhc.org, or visit NMHC’s web site at www.nmhc.org.