President Obama's Turn to Housing is Fine, but Too Late

Maybe what the President was actually thinking this whole time (eonline)

Maybe what the President was actually thinking this whole time (eonline)

This week the Obama Administration published an extensive white paper on the affordable housing crisis and what local governments can do to address it.  This is the first time that the administration has weighed in so heavily (or at least so formally) on the underlying issues causing the crisis and the policy proposals outlined are certainly positive (and should be familiar to readers of this blog).  As the Obama Presidency winds down and faces an unknown legacy in it’s immediate wake, this paper also offers a chance to review housing over the last eight years.  It might also shed some light as to why this paper is appearing now as opposed to earlier.

President Obama came to office in the midst of the Great Recession caused in no small part by the bursting of the housing bubble in 2007.  I’ve written a lot about the buildup to the bubble and the decades of policy choices that ultimately caused it, so I won’t spend time rehashing the gory details here.  Nor will I go into too much detail about the decisions made either by the Bush Administration or the Obama Administration to advert the crash.  This is old, if still controversial, territory.

But I do want to make two quick points about this period. First, the mortgage crisis that caused the housing bubble has never ended. Yes, the number of homeowners in trouble has been vastly reduced since the height of the crash (from 14 million homes underwater to roughly 4 million homes as of last year) but that still leaves a significant portion of American homeowners dangerously close to losing their homes.  The picture is worse for minority homeowners, especially in places like NYC where the crisis never got much attention.  The number of foreclosures has actually started to creep up in these demographics in recent years. The media moved on, but the crisis endures.

Second, the structural problems that also caused the housing bubble have never been addressed in any meaningful sense.  Though the federal government ultimately bailed out many of the banks involved in the crisis and effectively took over Fannie Mae and Freddie Mac, which are the largest providers of mortgages in the country, it did very little to change the dynamics of the housing market.  Homeownership is still the policy of the land and the expensive housing-industrial complex that supports it has continued to churn along as-is despite having caused the worst economic downturn since the Great Depression.

I don’t envy President Obama (or President Bush for that matter) for the decisions he had to make during the crash and I can’t honestly sit here and easily say he should have done something differently…. But he should have done something differently.

Many housing advocates, including this blog, continue to argue that the federal government should have helped to write down mortgages for millions of homeowners instead of bailing out the banks themselves.  If you support the basic logic that the government had to intervene somewhere in the market to right the economy, then you can just as easily argue that bailing out homeowners would have been the better economic choice.  Those funds going to pay down mortgages would have still gotten back to the banks and injected liquidity into the markets, which was absolutely needed.  It would have also freed up an enormous amount of capital for average Americans who were struggling to get by.  This could have stimulated all kinds of local economic activity that would have helped restore the health of the economy at a micro level.  Even some hybrid-intervention at both ends could have helped solve the crisis and open up space to discuss longer-term fixes.

I’m generalizing obviously, but the point is there were options on the table even during the height of the crisis.  No doubt some people were lobbying for the government to intervene on the side of homeowners, but the political system (and the individuals within it) internalized the needs of the financial world beyond all other considerations.  There were a few programs put in place to help homeowners, but they were largely left on their own.  Fundamentally, after all that, nothing has changed. 

The subsequent recovery has been slow and unequal at best, but it has been progressing along to the point that the crash is passing into history.  But it’s clear, as the white paper states, that the recovery is being dragged down by housing costs.

That’s because job creation over this period is happening in fewer and fewer parts of the country and housing policies in these areas have blocked new workers from moving in and prevented existing workers from seeing a rise in living standards as rents increase beyond wages.  What is truly shocking is that national productivity has gone down for the first time in 30 years as a result.

It’s lazy and ultimately wrong to point partisan fingers at this landscape.  Our political system has collectively failed the national interest. Rather than create and support policies that create and support well-paying jobs and affordable living conditions, the system has continued to encourage, reward, and protect, the financialization of America. And if you think that has been a good thing, we’ll you’re probably on the inside looking in.

Going back to the white paper, the Obama Administration at least acknowledges the economic landscape and recognizes the long-term damage it’s continuation could do for Americans.  The paper focuses on how to create more affordable housing in cities experiencing economic growth even as the majority of them maintain high-barriers to housing construction. 

The policy toolkit is sensible enough.  It calls for the relaxing of land-use restrictions, development permitting, and parking requirements.  It argues for allowing greater height, density, and diversity of dwellings.  It also suggests creating incentives to build around transit and vacant land through density bonuses and tax abatements.  It has all the hallmarks of a thoughtful, inclusive, and equitable policy plan.  Some of these ideas are obviously already available to local municipalities, but putting more focus on them for other cities to adopt is not a bad thing.

It’s the timing of the paper’s release that is disheartening.  No one inside or outside of the Administration thinks this is going anywhere while the President is still in office.  And it doesn’t seem likely that housing will get much attention on the campaign trail, despite how many Americans think it should.  It also doesn’t suggest any means for the Federal government to encourage these local policy initiatives.  (To be fair, white papers are a fixture of any government body and rarely get much attention or are generally expected to.)

A cynic would look at this release and say that the President wants to have a position on the record because at some point, whether through another crisis, or overdue popular pressure, housing will get the attention it desperately needs and he doesn’t want to appear asleep during his watch. The same cynic would also point out that the President didn’t actually want to spend the political capital during his presidency to pursue more affordable housing as much as he could have or should have.  Another cynic would look at this issue, and the times, and say the President might have been right not to.