Sens. Jon Tester (D-MT), Bob Corker (R-TN) and Johnny Isakson (R-GA) stressed that ongoing efforts to reform the U.S. tax code and overhaul the housing finance system should take into account the important role that housing plays in the economy. The senators joined housing industry experts at a forum that examined the future of U.S. housing, "Building a Better Future: America's Housing at a Crossroads," at the Newseum in Washington, D.C. The symposium was produced by CQ Roll Call and sponsored by the National Association of Home Builders (NAHB).
Sens. Tester and Corker are among 10 bipartisan cosponsors of the Housing Finance Reform and Taxpayer Protection Act (S. 1217), legislation to reform the nation's housing finance system that includes a federal backstop while limiting taxpayer exposure.
"We worked hard to make sure the 30-year, fixed-rate mortgage remains a viable option," said Sen. Tester. "This is something consumers want and expect. I don't think we could have a viable 30-year note in a purely private market."
"We had 10 senators that weighed in and made a difference," said Sen. Corker. "I think we have struck a very good balance. The 10 percent capital piece is a very, very important element. Another component that was very important was having a federal backstop."
As the legislative process moves forward, Corker added that he expects to see improvements to S. 1217 and that a housing finance proposal pending in the House will also undergo changes.
"My guess is by the time something passes out of the House it might be a little bit different from where it is and move a little more toward where the Senate bill is," said Sen. Corker. "My guess is the House and Senate can pass bills with different characteristics and we can move to conference to get something done for the country."
In terms of tax reform, Sen. Isakson, who is a member of the Senate Finance Committee, said his panel is prepared to move forward if it gets "the opportunity."
Isakson said that every provision in the tax code, including the mortgage interest deduction and Low Income Housing Tax Credit, must be justified in terms of "what they produce for the country. If you can't make a case for your tax provision, it should not be in there."
"I can make a great case for the preservation of the mortgage interest deduction and I can make a phenomenal case for low and moderate income housing tax credits in terms of the payback to the country, but those arguments have to be won and lost when you are truly doing a major reform," said Isakson.
Along with the Senate keynote speakers, housing analysts engaged in a series of in-depth discussions on key issues, with a special emphasis on the outlook for housing demand and production, ongoing efforts toward reform of the housing finance system and the potential impacts of tax reform on homeownership and the economy.
The housing downturn led to a "remarkable slowdown in household growth," said Eric Belsky, managing director, Joint Center for Housing Studies at Harvard University. "There is not a strong recovery in household formations, but we are seeing signs of that happening. People don't want to live with their parents into their 30s; they are doing it out of economic necessity."
As the economy continues to mend, pent-up demand for housing should also increase, according to NAHB Chief Economist David Crowe. "I would say in general the housing market is only half-way back," Crowe said. "Multifamily production is back to 300,000 units per year, which is nearly back to normal."
While the single-family side continues to gradually bounce back, Crowe said that several challenges remain. "Credit for buyers and builders remains difficult, and there is a lack of buildable lots," Crowe said.
"Nineteen out of 20 people say they plan on buying a home somewhere in the future if they are under the age of 45," said Belsky. "You can lock in housing payments with a fixed rate mortgage today or look at higher rents in the future. A lot of people will look at that calculation and say 'I think it is time to buy a home."
Columbia Business School Professor Christopher Mayer also noted that homeownership is not just an American dream but a global dream. "When you look at developing countries, people try to buy a home," said Mayer. "It is economic security."
Panelists addressing the issue of housing finance were in general agreement that the private sector needs to play a greater role in mortgage financing but that maintaining some level of federal support is essential to ensure stability and liquidity in the mortgage markets. A dissenting view on this latter point came from Peter Wallison of the American Enterprise Institute, who said that lowering the conforming loan limits of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac over time will allow the private sector to come in and pick up that business.
"If you simply made those changes and authorized the withdrawal of the GSEs, you would find we would gradually move to a completely private system, which is where I think we should be going," said Wallison.
This response drew a sharp rebuttal from other panelists.
"Private capital by itself will not secure a safe market and most importantly, private capital during a down market is least likely to be there," said Michael Calhoun, president of the Center for Responsible Lending (CRL).
"Mike is making a real important point that credit will dry up in the housing finance market when times get tough," said Georgetown University Law Professor Adam Levitan.
"There is a government, taxpayer supported entity that stands up," said Michael Stegman, counselor to the Secretary of the Treasury for Housing Finance Policy. "We know how much more serious the [housing and economic] crisis would have been without the FHA stepping up."