As the country celebrates its landmark 250 year anniversary, many of its residents are suffering from an ongoing housing crisis. The expense of basic housing has become unreachable for so many.
A new Realtor.com report looked at the most impactful homeownership legislation during the past 250 years to show that the challenges facing the housing market today are not new, and that the federal government has some ability to create change today as it has in the past.
"At several major inflection points in this country’s history, from the Great Depression, World War II, the Civil Rights era to the financial crisis, Congress stepped in and changed who could own a home and how they could afford one. The history is remarkably consistent: legislation works,” said Joel Berner, senior economist at Realtor.com in a press release.
The report highlighted five key impacts that changed homeownership.
Five Federal Laws Impacting Housing’s History
The federal government has a lot of responsibilities and housing the country’s residents is typically handled on a more local level, but five federal laws have made a distinct difference in the country’s 250 year history.
First was the Homestead Act of 1862 that granted 160-acre plots to anyone who was head of a family or 21 years old and could pay the filing fee. After five years, the land would be issued to that filer free and clear if they had resided there during that time and were improving it.
The act helped grow an area of the U.S. that wasn’t yet settled—expanding to 270 million acres in 30 states. It democratized homeownership by not being based on existing wealth and allowing grantees to earn their home with their own time and labor, minus the fact that the land was taken from Native Americans.
Next, was the National Housing Act of 1934 to handle the increasing amounts of mortgage defaults as the depression continued. With that challenge, the Federal Housing Association was set up to insure home mortgage loans from banks to encourage more lending. The act also changed the terms of conventional mortgages so down payments went from 30 or 50% to just 10% and repayment went from 10 to 30 years.
The government-insured mortgages provided market stability and increased the availability of funding for home building and purchasing. And, while homeownership dropped after the act passed, it would have dropped much more without it. It still has a presence in today’s mortgage market, along with carrying some challenges.
The next act was the Servicemen’s Readjustment Act of 1944, or the GI Bill, after World War II that gave veterans a low-interest, no-money-down loan for a home. The guarantee made veterans safer investments for banks, since the government would pay back either 50% of the loan or $2,000 if the recipient failed to repay. These loans could pay for the purchase, construction, or improvement of a property.
The GI Bill boosted homeownership from 43.6% in 1940 to 61.9% in 1960. This government subsidy program offered low cost financing for a home purchase at a time when it was needed.
In 1968, the Fair Housing Act, prohibited discrimination in the sale, rental, and financing of housing based on race, color, national origin, religion, sex, familial status, and disability. The Act outlawed housing discrimination from redlining, the practice of denying mortgages and home improvement loans to applicants in minority-majority neighborhoods.
With expanded access to credit, homeownership included more minority groups and climbed until 1980. Homeownership for Black Americans went from 38% in 1960 to 44% in 1980.
The final act from the Realtor.com report is the Housing and Economic Recovery Act (HERA) of 2008, which was a collection of reforms to try to stop dropping home prices after lenders had taken on too much risk. The bill expanded access to FHA loans by increasing loan limits and creating a formula that let them grow over time with home prices. It also established 3.5% as a minimum down payment, up from 3% and gave first time buyers a tax credit.
The most impactful aspect of the act was moving Fannie Mae and Freddie Mac under government conservatorship, which prevented their collapse. Overall, HERA did more to stabilize housing than it did to expand homeownership.
These lessons learned provide a strong foundation for future progress in a housing market that again desperately needs reform.
Future Housing Opportunities
Realtor.com focused on bills that subsidized homeownership, expanded access to credit, and ensured stability and liquidity in the mortgage market, but says that today’s market is challenged by supply, suggesting that what we need is to build more homes.
A community development bank senior relationship manager with years of experience in the industry shared some ideas that are also worth considering after the country’s leadership has stalled housing support.
In tune with the anniversary theme, he suggests a $250 billion housing bond lottery for starter homes that would sell for less than $250,000 in 250 counties. A national bank was able to do this with farmland frontier settlements in the Midwest and West.
Alternatively, a revitalization of the Homestead Act could help overcome major economic and regulatory hurdles in some areas. One way to do that would be to identify land or tax-forfeited properties in 250 economically distressed or growing rural and suburban counties to be offered at low or no cost to developers or first-time buyers. The associated bond funds could be distributed as low-interest loans to builders or direct down payment assistance to income-qualified buyers.
Another route would be to incentivize large private capital and pension funds to underwrite new housing with any initial losses absorbed by government-backed guarantees.
“The national median starter home currently hovers just under $200,000, but in many of the country’s economic hubs, entry level prices are pushing seven figures,” he said. “So, we’d need to implement off-site modular, create standardized models, prefabricated or modular housing, or manufactured homes to cut traditional construction costs.”
While zoning and permitting remain controlled at a local level, the federal government can influence the policies with grant money tied to more effective and efficient processes.
Builders aren’t the only ones that can effect change. A segment of USA Today’s recent documentary, America 250, called The Future of American Homebuilding, focused on innovation in building materials to meet the needs of homeowners and builders, and, included LP Building Solutions.
Today, as the U.S. faces ongoing housing supply challenges and an aging housing stock, LP continues to focus on developing products that help improve home performance, durability and efficiency. It’s one of more than 250 products that could step up to offer new solutions.
For how else the past impacts the future of housing and the pace at which it evolves, it’s up to the buyers and the homeowners themselves. Better said, it will be dictated by demand and the levers that control demand. This weekend we’ll celebrate the past 250 years and look forward to exciting changes in housing in the next 250.