The U.S. housing market has been in shambles since 2008, when it helped bring the country to the edge of economic collapse. And though systemic issues like unrealistic mortgages and over-reliance on ever-rising values helped bring about the crisis, the housing industry itself also shoulders part of the blame.
And it's not like the industry is doing any better helping the economy now, according to a new report from Brookings Institution senior fellow Anthony Downs.
In the report, Downs lists nine ways the housing industry is failing to meet the country’s needs. These deficiencies, he argues, will keep the housing market from helping the country recover from the recession as it has in the past.
Many of the deficiencies listed are simple and directly related to the crash of the housing market and the resulting recession. People can’t and aren’t willing to buy homes. They’ve been forced to default on their mortgages. There’s no supply priced for the newly low-income, nor the persistently poor. These circumstances are symptoms of high unemployment and a generally crummy economy.
But Downs also lists a number of organizational issues that have prevented the housing market from playing a positive and helpful role in the U.S. economy.
He singles out banks and mortgage lenders for not playing ball with the federal government to try to reduce payments and help people stay in their homes, leading to a rash of foreclosures across the country. This is a problem for these now-former homeowners, but also a bad thing for the housing market in general, as foreclosures make up a larger portion of sales and have therefore driven down the average value of all home sales, according to Downs.
This plays into another of Downs’ deficiencies. The downward pull on the average value of all home sales, Downs argues, is not accounted for in the three main home price indicators, which creates and over-estimation of the value of non-foreclosures, effectively skewing the marketplace. Another deficiency is the mortgage interest deduction that homeowners can apply against their income taxes. Downs says this disproportionally benefits wealthier homeowners and creates a drain on government resources. And with lenders placing excessive requirements for new home loans, many are simply unable to get the financing to own even a home within their budgets.
Other larger issues include the discrimination against low-cost housing in communities across America. Downs cites local decision making that tends to NIMBY-out rental housing and low-income housing options, creating pockets of poverty, often in suburban areas outside of communities pursuing these sorts of exclusionary zoning policies.
Downs contends that it will take years to overcome these deficiencies, and that some of these endemic problems are unlikely to ever change. It’s not an especially rosy picture of the future, especially when the fate of the country’s economic health has so often relied on the health of the housing market. Overall, he estimates that the housing industry won’t fully recover to its 2006 boom levels for another eight or nine years. In the meantime, he argues that significant changes need to be made to enable more people to get financing, more affordable houses to be built, and more cooperation to occur between the governments and the banks to address the unrelenting impacts of the foreclosure crisis.
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