America's On-going Housing Crisis and the Politics of the Young
There was a time, not very long ago, when housing was high on the political agenda, and understandably so, since by 2008, its inadequate financing had helped trigger the worst economic crisis in over six decades. The bitter fall-out from that crisis - the foreclosures that came with the house-price collapse, the involuntary unemployment caused by the resulting credit-crunch, and then the extra foreclosures that came with that unemployment - then kept public policy on housing front and center in the clash between political parties at both the federal and state levels. But no longer. Now the financial crisis is nearly a decade back in time, and the worst of the foreclosure crisis that accompanied it has largely played itself out. The talk now is of new problems and of new voting blocs.
Not least among those new blocs are the millennial generation, and their supposed appetite for a new form of radical politics. When political commentators on both sides of the Atlantic seek an explanation of that unexpected radicalism, they talk regularly about unemployment, inequality, and stagnant wages. They do not talk so regularly about housing, and they should.
I
For the legacy of the housing crisis remains firmly in place - largely undiscussed but still potent, hidden deep beneath the surface of contemporary politics. It is a legacy that falls most heavily on the young. Five features of that legacy are particularly relevant now.
THE LINGERING FORECLOSURE CRISIS
The foreclosure crisis has eased, but it has not gone away. Even now there are still over 900,000 houses in some form of foreclosure, and more than five million mortgaged houses remain trapped in negative equity. And those caught up in foreclosure still carry heavy financial burdens because of their earlier losses, and still find their return to house ownership impaired: indeed "less than one-third of families who lost their homes to foreclosure...in the past decade are likely to become homeowners again." With the wisdom of hindsight, therefore, it is clear that the public policy response to the original foreclosure crisis was woefully inadequate. The Obama Administration's HAMP initiative (Housing Affordable Modification Program), facing as many as four million troubled borrowers at the peak of the crisis, helped less than 900,000 of them re-negotiate their mortgages in its first six years of operation - in part because it handed the administration of its relief over to the very banks that had initially triggered the crisis, and which so far have rejected 72% of all the requests for help submitted to them. As The New York Times correctly put it just recently: "the promise of widespread relief for homeowners facing foreclosure has never been realized."
THE CONTINUING FAILURE TO PUNISH
It is not only the legacy of the foreclosure crisis that lingers on. What also lingers is the reluctance of the governing authorities to hold personally/criminally responsible those whose policies and practices triggered the original crisis. For all the fine talk in 2008/9 of reining in Wall Street, the heads of the main subprime lending companies (men like men like Angelo Mozilo of Countrywide Financial and Stan O'Neal of Merrilll Lynch) walked away with huge severance settlements - Mozilo's was reported as $132 million and Neal's at $162 million - and with no criminal prosecutions or jail time. Quietly over time the companies they led then paid huge fines to the government for their dishonest and misleading handling of mortgages and of the securities backed by them. The recent Goldman Sachs settlement of $5.1 billion and Morgan Stanley fine of $3.2 billion are two cases in point. But even those days of limited corporate payback would appear to be numbered. Certainly they will be soon over if the lack of treatment of this issue in recent Republican Party presidential debates is any guide. Two weeks ago in South Carolina, for example, when asked about the Morgan Stanley fine, Ben Carson said this.
"Here's the big problem. We've got all these government regulators and all they're doing is running around looking for people to fine. And we've got 645 different federal agencies and sub-agencies. Way, way too many. And they don't have anything else to do. I think what we really need to do is start trimming the regulatory agencies rather than going after the people who are trying to increase the viability, economic viability, of our society."
No one challenged him on the nonsense and idiocy of that answer: proof, if more proof were needed, that the burden of the greatest foreclosure crisis in American history will continue to be borne primarily by its victims and not by its perpetrators.
THE ON-GOING HOUSING CRISIS
The more general housing crisis also lingers on. Indeed, for the millennial generation, that crisis is getting steadily worse. US housing finance was effectively nationalized in 2009, and has remained so since. So policy vehicles existed immediately after the crisis, and exist now, for imaginative public policy here: but they are not being used in that manner. Instead they are being used to re-introduce conservative underwriting standards into housing markets made unstable prior to 2008 by their erosion. We are now broadly back to a "20 percent deposit, and no more than 30 percent of gross monthly income" kind of housing finance regime. Yet with stagnant wages and low starting salaries for young workers in particular, that return to conservative underwriting standards effectively closes the door on house purchase for more and more members of both the millennial generation and of the generation ("X") that preceded it. So even with record low mortgage interest rates, the demographic profile of home ownership continues to age. The home-ownership rate is now down to 63.7 percent from its 2004 peak of 69 percent - the result of the interplay of tougher underwriting standards, house prices rising roughly twice as fast as wages, lack of equity among potential buyers in their 40's, and lack of deposits among cash-strapped 20 year olds. The Urban Institute estimate that as many as 1.2 million would be home-buyers are currently shut out of the US housing market because of tougher underwriting standards alone.
PROBLEMS IN THE RENTAL SECTOR
The result has been an ever greater number of people pushed into the rented-housing sector -particularly young adults "held back by problems pinning down a job, huge student debt burdens and difficulties saving for a big down-payment." That might not matter so much if the rented sector was working well, but it is not. In a whole string of towns and cities, the cost of renting houses, apartments or even rooms is currently rising at a rate faster than the incomes of most of those needing to rent them. The number of single family home rentals increased by 3 million between 2006 and 2013, with almost half of those renters now having housing costs that take up more than 50 percent of their incomes. This is a burden that falls particularly heavily on the young. A recent study found that one in five millennial parents are currently impoverished, their finances drained by rent, student debt and childcare costs: another found that "higher rent costs are making the process of saving for a down-payment very, very difficult." And even getting into the rented sector is becoming harder for young adults, as demand for accommodation continues to outstrip supply. The Pew Research Center recently found, for example, that while very young adults (18-24) are marginally less likely to be living back with their parents now than in 2013, those aged 25-34 are more likely to be there still: one in six older millennial men currently living at home.
THE INADEQUATE PROVISION OF SOCIAL HOUSING
The federal government currently spends more than $270 billion a year in housing aid, the vast majority of which does not go to the poor. Instead, much of it goes in mortgage relief to already affluent homeowners. The bit that does go to the poor - primarily through HUD programs on housing assistance (at over $50 billion in 2009) - is invariably means-tested, and beset by funding limits. In many communities indeed, the waiting lists for housing assistance are now so long - up to several years - that in some cities housing authorities no longer add new families to the list because there is simply no prospect of newer families receiving an apartment in the foreseeable future. The parallel HUD-financed programs of urban renewal continue to be undermined as vehicles of social progress by the racially-structured nature of unemployment and incarceration, and by the associated white flight to America's suburbs. The result is a persisting and enormous gap in access to housing in the United States organized overwhelmingly on the basis of race.
II
The main consequence of all this is what one analyst of similar housing trends in the UK recently called a lack of "inter-generational fairness," one in which members of the younger generation have to spend significantly larger proportions of their increasingly limited incomes in order simply to access average quality housing. This is an inter-generational unfairness that is itself not equally shared. On the contrary, the distribution of the burden of the unfairness is itself unfair. It is not shared by social class even within the generation most exposed to it: the children of the affluent have access to family support when financing their housing that the children of less affluent parents do not. And it is not shared by ethnicity: the burden of financing housing, and the barriers to access to adequate housing, fall heaviest on ethnic minority populations.
Most Americans presumably know this, even without having easy access to the precise details. They know broadly that "the poorest fifth of Americans already spend more than 40 percent of their income on housing, compared with less than 31 percent for the upper fifth:" and that black and Latino applicants for home mortgages continue to experience - relative to white applicants - higher borrowing costs, higher rates of denial, and higher concentrations of home purchase in neighborhoods of color.
Perhaps that is why, in a recent poll, as many as three in five of those asked believe that "we are either still 'in the middle of the housing crisis' (41%) or that 'the worst is yet to come' (20%)." Yet in spite of that, the housing crisis has fallen off the current political agenda; and it needs to be restored to its proper place there as quickly and as loudly as possible. It needs to be because the housing crisis now afflicting the millennial generation is a deep and an intensifying one; and because a political class that responds to that crisis in an imaginative way will help draw an increasingly alienated generation back into democratic politics.
The young need the housing, and all of us need the democratic input. It is time, therefore, for the baby boomers still in charge in Washington DC to lift their game on this one, and (in the interests of all of us) to put America's housing back in order once more.
For a fuller US-UK comparative analysis, with full academic citations, see www.davidcoates.net
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Not least among those new blocs are the millennial generation, and their supposed appetite for a new form of radical politics. When political commentators on both sides of the Atlantic seek an explanation of that unexpected radicalism, they talk regularly about unemployment, inequality, and stagnant wages. They do not talk so regularly about housing, and they should.
For the legacy of the housing crisis remains firmly in place - largely undiscussed but still potent, hidden deep beneath the surface of contemporary politics. It is a legacy that falls most heavily on the young. Five features of that legacy are particularly relevant now.
THE LINGERING FORECLOSURE CRISIS
The foreclosure crisis has eased, but it has not gone away. Even now there are still over 900,000 houses in some form of foreclosure, and more than five million mortgaged houses remain trapped in negative equity. And those caught up in foreclosure still carry heavy financial burdens because of their earlier losses, and still find their return to house ownership impaired: indeed "less than one-third of families who lost their homes to foreclosure...in the past decade are likely to become homeowners again." With the wisdom of hindsight, therefore, it is clear that the public policy response to the original foreclosure crisis was woefully inadequate. The Obama Administration's HAMP initiative (Housing Affordable Modification Program), facing as many as four million troubled borrowers at the peak of the crisis, helped less than 900,000 of them re-negotiate their mortgages in its first six years of operation - in part because it handed the administration of its relief over to the very banks that had initially triggered the crisis, and which so far have rejected 72% of all the requests for help submitted to them. As The New York Times correctly put it just recently: "the promise of widespread relief for homeowners facing foreclosure has never been realized."
THE CONTINUING FAILURE TO PUNISH
It is not only the legacy of the foreclosure crisis that lingers on. What also lingers is the reluctance of the governing authorities to hold personally/criminally responsible those whose policies and practices triggered the original crisis. For all the fine talk in 2008/9 of reining in Wall Street, the heads of the main subprime lending companies (men like men like Angelo Mozilo of Countrywide Financial and Stan O'Neal of Merrilll Lynch) walked away with huge severance settlements - Mozilo's was reported as $132 million and Neal's at $162 million - and with no criminal prosecutions or jail time. Quietly over time the companies they led then paid huge fines to the government for their dishonest and misleading handling of mortgages and of the securities backed by them. The recent Goldman Sachs settlement of $5.1 billion and Morgan Stanley fine of $3.2 billion are two cases in point. But even those days of limited corporate payback would appear to be numbered. Certainly they will be soon over if the lack of treatment of this issue in recent Republican Party presidential debates is any guide. Two weeks ago in South Carolina, for example, when asked about the Morgan Stanley fine, Ben Carson said this.
"Here's the big problem. We've got all these government regulators and all they're doing is running around looking for people to fine. And we've got 645 different federal agencies and sub-agencies. Way, way too many. And they don't have anything else to do. I think what we really need to do is start trimming the regulatory agencies rather than going after the people who are trying to increase the viability, economic viability, of our society."
No one challenged him on the nonsense and idiocy of that answer: proof, if more proof were needed, that the burden of the greatest foreclosure crisis in American history will continue to be borne primarily by its victims and not by its perpetrators.
THE ON-GOING HOUSING CRISIS
The more general housing crisis also lingers on. Indeed, for the millennial generation, that crisis is getting steadily worse. US housing finance was effectively nationalized in 2009, and has remained so since. So policy vehicles existed immediately after the crisis, and exist now, for imaginative public policy here: but they are not being used in that manner. Instead they are being used to re-introduce conservative underwriting standards into housing markets made unstable prior to 2008 by their erosion. We are now broadly back to a "20 percent deposit, and no more than 30 percent of gross monthly income" kind of housing finance regime. Yet with stagnant wages and low starting salaries for young workers in particular, that return to conservative underwriting standards effectively closes the door on house purchase for more and more members of both the millennial generation and of the generation ("X") that preceded it. So even with record low mortgage interest rates, the demographic profile of home ownership continues to age. The home-ownership rate is now down to 63.7 percent from its 2004 peak of 69 percent - the result of the interplay of tougher underwriting standards, house prices rising roughly twice as fast as wages, lack of equity among potential buyers in their 40's, and lack of deposits among cash-strapped 20 year olds. The Urban Institute estimate that as many as 1.2 million would be home-buyers are currently shut out of the US housing market because of tougher underwriting standards alone.
PROBLEMS IN THE RENTAL SECTOR
The result has been an ever greater number of people pushed into the rented-housing sector -particularly young adults "held back by problems pinning down a job, huge student debt burdens and difficulties saving for a big down-payment." That might not matter so much if the rented sector was working well, but it is not. In a whole string of towns and cities, the cost of renting houses, apartments or even rooms is currently rising at a rate faster than the incomes of most of those needing to rent them. The number of single family home rentals increased by 3 million between 2006 and 2013, with almost half of those renters now having housing costs that take up more than 50 percent of their incomes. This is a burden that falls particularly heavily on the young. A recent study found that one in five millennial parents are currently impoverished, their finances drained by rent, student debt and childcare costs: another found that "higher rent costs are making the process of saving for a down-payment very, very difficult." And even getting into the rented sector is becoming harder for young adults, as demand for accommodation continues to outstrip supply. The Pew Research Center recently found, for example, that while very young adults (18-24) are marginally less likely to be living back with their parents now than in 2013, those aged 25-34 are more likely to be there still: one in six older millennial men currently living at home.
THE INADEQUATE PROVISION OF SOCIAL HOUSING
The federal government currently spends more than $270 billion a year in housing aid, the vast majority of which does not go to the poor. Instead, much of it goes in mortgage relief to already affluent homeowners. The bit that does go to the poor - primarily through HUD programs on housing assistance (at over $50 billion in 2009) - is invariably means-tested, and beset by funding limits. In many communities indeed, the waiting lists for housing assistance are now so long - up to several years - that in some cities housing authorities no longer add new families to the list because there is simply no prospect of newer families receiving an apartment in the foreseeable future. The parallel HUD-financed programs of urban renewal continue to be undermined as vehicles of social progress by the racially-structured nature of unemployment and incarceration, and by the associated white flight to America's suburbs. The result is a persisting and enormous gap in access to housing in the United States organized overwhelmingly on the basis of race.
The main consequence of all this is what one analyst of similar housing trends in the UK recently called a lack of "inter-generational fairness," one in which members of the younger generation have to spend significantly larger proportions of their increasingly limited incomes in order simply to access average quality housing. This is an inter-generational unfairness that is itself not equally shared. On the contrary, the distribution of the burden of the unfairness is itself unfair. It is not shared by social class even within the generation most exposed to it: the children of the affluent have access to family support when financing their housing that the children of less affluent parents do not. And it is not shared by ethnicity: the burden of financing housing, and the barriers to access to adequate housing, fall heaviest on ethnic minority populations.
Most Americans presumably know this, even without having easy access to the precise details. They know broadly that "the poorest fifth of Americans already spend more than 40 percent of their income on housing, compared with less than 31 percent for the upper fifth:" and that black and Latino applicants for home mortgages continue to experience - relative to white applicants - higher borrowing costs, higher rates of denial, and higher concentrations of home purchase in neighborhoods of color.
Perhaps that is why, in a recent poll, as many as three in five of those asked believe that "we are either still 'in the middle of the housing crisis' (41%) or that 'the worst is yet to come' (20%)." Yet in spite of that, the housing crisis has fallen off the current political agenda; and it needs to be restored to its proper place there as quickly and as loudly as possible. It needs to be because the housing crisis now afflicting the millennial generation is a deep and an intensifying one; and because a political class that responds to that crisis in an imaginative way will help draw an increasingly alienated generation back into democratic politics.
The young need the housing, and all of us need the democratic input. It is time, therefore, for the baby boomers still in charge in Washington DC to lift their game on this one, and (in the interests of all of us) to put America's housing back in order once more.
For a fuller US-UK comparative analysis, with full academic citations, see www.davidcoates.net
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