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Housing Affordability: Insights from Former FHFA Director Mark Calabria
In a recent interview with Housing Wire, Mark Calabria, the former Federal Housing Finance Agency (FHFA) director under the Trump administration, shared his thoughts on housing affordability and potential policy approaches. His insights shed light on the complexities of the housing market and offer some food for thought for mortgage industry professionals.
The Demand vs. Supply Dilemma
Calabria points out a crucial issue with current housing policies: they often focus on increasing demand rather than addressing supply. He critiques proposals like the $10,000 tax credit for down payments, stating:
“What is a $10,000 tax credit for down payments but increasing demand? That’s not going to make housing more affordable. It may make housing more affordable to the individual who gets it, but it makes overall housing less affordable.”
This observation highlights a fundamental problem in our approach to housing affordability. While such policies may benefit individual homebuyers, they can inadvertently drive up overall housing costs, making the market less affordable for others.
Unintended Consequences for Underserved Communities
Perhaps more concerning is how these policies may disproportionately harm under-served and minority communities. Those who can’t afford homes to qualify for tax benefits or who are outbid by financially stronger borrowers end up worse off. Ironically, policies intended to bridge the wealth gap through housing have seen that gap widen over the past couple of decades.
The Supply-Side Solution: Construction Financing
Calabria suggests that the real solution lies in addressing housing supply, particularly through improved construction financing. He notes:
“Certainly, on the lending side, the constraint is not you and I get a mortgage; the constraint is the builder getting construction finance. That results from 30% to 40% of community banks since Dodd-Frank having disappeared.”
The disappearance of community banks has led to a scarcity of construction financing, making it more expensive and less accessible. This has resulted in consolidation among builders and created opportunities for smaller, community-based builders who can fill the gap left by larger national builders.
Opportunities for Lenders
For lenders struggling in the current market, there are opportunities to be found:
- Reach out to small local construction firms, as they’re experiencing significant demand.
- Explore NonQM (Qualified Mortgage) lending, which offers more flexibility.
- Consider working with NonQM borrowers and lenders like Truly Investor Capital and Oaktree Funding, who offer a variety of products.
Looking Ahead
The future of housing policy and its impact on the mortgage industry may depend on the outcome of the next presidential election. A Biden administration might continue to focus on demand-side policies, while a Trump administration could potentially ease regulations and focus more on strengthening community banks and construction lending.
Regardless of the political outcome, it’s clear that addressing housing affordability will require a more nuanced approach that considers both supply and demand factors. As industry professionals, staying informed and adaptable will be key to navigating these changing waters.
