Local government must step up in fighting housing price inflation

The cost of housing in America is escalating at an unsustainable rate – not for landlords and builders, but for Americans trying to pay the rent. According to the S&P CoreLogic Case-Shiller national home price index, home prices rose another 18.6% in June, which was the largest monthly gain in 34 years. This surge in pricing comes from the U.S. facing a shortfall of 5.24 million homes according to data from Realtor.com.

The Federal Government’s role in the U.S. housing market is enormous, and the Biden Administration is wasting no time in addressing the supply issues — both in actual housing policy and in expanding access to mortgages — that will help alleviate this crisis.

Two weeks ago, the Biden Administration published a white paper on housing, underscoring the need for more affordable multifamily housing in America. As single-family home builders continue to build new homes at price points over $400,000, and as the existing housing stock continues to inflate in value, there is practically no entry-level single family housing left in America. That leaves the development of more multifamily housing as the only vehicle to supply new, affordable housing in most neighborhoods.

One step the Biden Administration is taking to remedy this problem is to increase the amount of Low Income Housing Tax Credit investments Fannie Mae and Freddie Mac can make on an annual basis. This is a start. But local jurisdictions across the country also need to step up by changing their zoning or other restrictive laws to facilitate additional development, whether it be multifamily housing in urban and suburban markets or manufactured housing in less dense areas.

As well, the Federal Housing Finance Administration and the Treasury Department just announced that they are suspending certain restrictions on Fannie Mae and Freddie Mac to increase the volume of lending on certain types of single family and multifamily housing. Treasury Secretary Janet Yellen and FHFA Acting-Director Sandra Thompson saw that these restrictions would limit the amount of capital going to the housing industry and curtail development of new homes.

Further, FHFA just lowered Fannie Mae and Freddie Mac’s capital rule to allow them to provide additional liquidity to the market. Importantly, in conjunction with lowering the capital rule, FHFA increased the amount of credit risk transfer Fannie and Freddie are able to do, which means that private capital, not taxpayers, will sit in the primary risk position on the loans guaranteed by the GSEs. Fannie and Freddie’s credit policies are dramatically different today than they were prior to the Great Financial Crisis, and with increased credit risk transfer to private capital, more loans will be made with less risk to the U.S. taxpayer.

While increasing the supply of housing will take time, like other supply chain issues being addressed today across the economy, new supply will come online and ease the current rent burden that so many Americans are feeling. The FHFA and Treasury Department have taken swift and bold action to increase liquidity, spur development, and start tamping down the inflationary pressures so many Americans are feeling today.