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December 2013

Housing experts say it's time

to reset housing policies

By NWREporter

December 2013

Citing "numerous and urgent housing challenges" and describing the nation's housing system as outdated and ill-equipped to keep pace with changing needs, an internationally recognized housing expert said housing deserves the concerted attention of the nation's leaders.

Speaking before a capacity crowd at the Harvard Graduate School of Design, J. Ronald Terwilliger, chairman emeritus of Trammel Crow Residential, noted housing rarely makes the platform of the two major political parties. Addressing the housing deficit needs to be a top priority, not an afterthought, he emphasized.

TerwilligerTerwilliger, a former chairman of both the Urban Land Institute and Habitat for Humanity, said federal policymakers should discard "prevailing orthodoxies" and redirect the government's $200 billion in annual expenditures on housing to support more vulnerable households. In particular, he noted evolving needs due to demographic changes and a burgeoning senior population have enormous implications for housing.

Changing trends will challenge housing policymakers to develop new, more effective strategies, Terwilliger stated, including ways to increase the supply of affordable rental housing to meet the rising demand in the marketplace.

In discussing the rising need for rental housing, Terwilliger reminded the audience of his long career as a real estate developer. "I am not anti-housing," he emphasized, but said changing demographics and needs point to a shrinking rate of homeownership. He believes the new paradigm will be homeownership rates near 60 percent.

Following what he called a quick tour through "housing policy innovations," including the Housing Act of 1949, the creation of HUD, Section 8 programs, the Fair Housing Act, and the Tax Reform Act of 1986 providing for low income housing tax credits, the speaker said the U.S. is facing "another strategic inflection point."

Terwilliger believes changing demographics, particularly around aging and more diverse populations, will require fundamental changes in housing policy "to match the new realities of the marketplace."

According to Harvard's Joint Center for Housing Studies, about 70 percent of the 11.8 million net new households that form in the United States between 2010 and 2020 will be headed by members of minority groups, with much of this growth attributable to Hispanic households. By 2020, minority households are projected to constitute one-third of all U.S. households and a growing share of the younger renter population.

Echo boomers (born between 1981 and 1995, and the children of baby boomers) are a cohort of around 62 million individuals, Terwilliger noted. Having waited on the sidelines during the Great Recession, these individuals are now forming new households. Together with growing populations of Hispanics and other minorities, they will need housing, but tighter mortgage underwriting will constrain their ability to purchase a home.

In discussing the rising demand for affordable rental housing, Terwilliger referenced a much-anticipated report titled Housing America's Future: New Directions for National Policy. The 136-page, bipartisan report culminated a 16-month scrutiny of key issues in housing, with the goal of providing "a blueprint for an entirely new system of housing finance for both the ownership and rental markets."

In calling for the new direction, the report described the nation's housing system as "broken," and said the problems are "so significant and so urgent that inaction is no longer a viable option." The publication was produced by the Bipartisan Policy Center's Housing Commission, which outlined key principles for guiding policy changes that would improve "access to homeownership and its considerable benefits" (see box).

During his remarks, Terwilliger cited data from the Housing Commission's report, along with statistics attributed to the Joint Center for Housing Studies. Researchers found an "astonishing" one in two rental households is already cost-burdened, paying more than 30 percent of household income on rent and utilities, the federal standard for housing affordability.

"A decent home in a suitable living environment should be at the core of our nation's housing policy," Terwilliger declared. He believes a more balanced approach in allocating limited resources is needed. Of approximately $200 billion in housing expenditures, around three-fourths of the money supports homeowners, "despite the fact that homeowners have twice the income of renters. It makes no sense," he remarked.

"The path forward is clear," according to the speaker. Terwilliger said wiser, more effective spending is crucial. The approach to subsidizing homeownership should be reformed to help those who truly need help purchasing and sustaining a home suitable for their family. He also supports down payment assistance and subsidized interest rates for first-time, low-wealth home buyers.

"We should then put the significant savings that result to work supporting the (phased-in) production of hundreds of thousands of new affordable rental homes."

Congress should also preserve and expand the Low Income Housing Tax Credit program, Terwilliger said. "The housing credit works," he emphasized, adding, "Without question it's been our nation's most effective tool in supporting the production of rental housing for low and moderate income families."

The speaker believes one of the best features of the tax credits is that it engages private market forces while minimizing risks to the federal government and taxpayers. "It is a true public-private partnership," he noted, saying eliminating it would be "a colossal mistake."

"I have lived the American Dream," the speaker told his audience. Based on his decades of experience in both the for-profit and nonprofit sectors, Terwilliger said the most significant impediment for achieving the American Dream for many low income families is the lack of suitably located, affordable housing."

"It is time to rethink our federal housing policy," who noted he was the first private sector developer to speak at the annual John T. Dunlop Lecture.

Now in its 14th year, the lecture commemorates the life and work of the late John T. Dunlop, Lamont University Professor Emeritus of Harvard University (1985-2003) and U.S. Secretary of Labor during the Ford administration. Professor Dunlop was also a widely respected leader in the nation's housing and construction related communities.

Proposed Principles to Guide Policies
to Expand Homeownership Opportunities

  • A new and reinvigorated commitment to homeownership requires a strong vibrant housing finance system where creditworthy borrowers can get a mortgage, along with responsible lending practices and a stable regulatory regime that provides clear rules of the road for mortgage lenders and borrowers.
  • Support a production system capable of constructing homes that will be affordable and suitable for the millions of households who will seek to become homeowners for the first time.
  • Make housing counseling and education a central component of any strategy to expand homeownership opportunities, particularly as a means of preparing first-time homebuyers for the financial and other responsibilities of homeownership.
  • Mortgage lending, zoning, and land-use policies should support new forms of homeownership that can lower costs and preserve affordable homeownership opportunities over time.

The commission also noted it supports the continuation of tax incentives for homeownership, "but recognizes that, in the ongoing debate over tax reform and budget priorities, all revenue options will be evaluated."

"Housing America's Future: New Directions for National Policy"
Housing Commission, Bipartisan Policy Center