MReport November 2022

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48 | M REPORT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST DATA Fannie Mae: Home Prices, Rents May Stabilize in 2023 Fannie Mae experts recently analyzed the nation's housing supply issue, and a new report suggests tactics to help grow the lack of inventory. A ccording to Fannie Mae, every American city has a hous- ing supply problem, but each city's housing supply problem remains unique—one of the primary conclusions of research published by experts at the GSE. While the nation does indeed have a national short- age of affordable housing, the tools and tactics used to create needed new housing supply will have to be tailored. Fannie Mae's experts found that increasing housing for low- and moderate-income homeowners and renters will require hard choices and changes that many communities have a history of resisting. Until those choices are made, however, the economic and social benefits of adequate housing supply will be squandered, and the economic and social challeng- es caused by its lack will grow. The causes of the housing supply crisis are, for the most part, widely understood. After the Great Recession, new home construction dropped like a stone. Fewer new homes were built in the 10 years ended 2018 than in any decade since the 1960s. By 2019, a good estimate of the shortage of housing units for sale or rent was 3.8 million. The pandemic-induced materials and labor shortage exacerbated the trend, however, as evidenced by the surge in rents and home prices in 2021. Rising mortgage interest rates have already reduced housing demand, particularly for new homes, and a possible economic slowdown could reduce demand further. Fannie Mae expects that prices and rents will likely stabi- lize or even fall in some markets. Nevertheless, the supply prob- lem will remain, and the pain it causes will likely continue to be felt mostly by low- and moderate- income families. Making sure mortgage funds are available to create and pre- serve affordable housing supply for low- and moderate-income families is central to what Fannie Mae does. Recent research esti- mates that Fannie Mae has sup- ported the addition or retention of more than 575,000 affordable units from 2019 to 2021. The high- est share of that total comes from our purchase of loans on newly constructed single-family homes bought by households with moderate-to-low incomes, our financing to preserve affordable multifamily rental housing, and our investments in low-income housing tax credits. Fannie Mae can do more such financing, but only if the housing supply is there to be financed, and it isn't. Until communities everywhere begin to take substan- tive steps to build and preserve affordable housing stock where they are needed most, and in the way they are needed most, families everywhere will continue to struggle with undue housing cost burdens. A report authored by Fannie Mae economists Kim Betancourt, Stephen Gardner, and Mark Palim evaluated the housing supply of the 75 largest metropolitan mar- kets in the U.S. and stacked it up against the housing needs of the people living in those markets. What emerges from this work is the conclusion that while housing supply problem is a national issue, solving it is a local one. For instance, the most housing- cost-burdened households are not just in coastal metros with high housing costs. Some of the nation's most significant shares of housing-cost-burdened households are in less expensive metros such as Fresno, California; Charlotte, North Carolina; and Las Vegas. Even many smaller metro areas, such as El Paso or McAllen, Texas, do not have a housing supply that is affordable for large swathes of their populations. Addressing housing supply shortages will require different, highly localized strategies. As the research report lays out, more affordable multifamily rental housing in some markets, such as Dallas and Atlanta, could make a big difference in improving overall housing affordability. In other markets, solutions should be focused on the building of new single-family homes, while in other markets it may be preserv- ing existing multifamily housing. However, one conclusion is inescapable: The supply and affordability problems described in this report, which is based on 2019 data (the last pre-pandemic year for which usable data on housing cost burdens exist), has gotten worse. Even with the recent slowing down of home price growth and the reduction in demand caused by inflation and higher interest rates, the run-up in rents and home prices since 2019 has been catastrophic for working families. While the economic drivers of housing costs—materials and labor inflation, supply chain disruptions, etc.—may take years to improve, there are things that states and municipalities can do, in partner- ship with investors, builders, and lenders, to help ease the way for more housing. Zoning reform efforts to encourage more density and multifamily housing near transportation and job hubs is one way to help, and there are promis- ing signs in some of our most cost- burdened states that such efforts will work. Another way would be to boost efforts to scale back or streamline the regulatory barriers that slow down new construc- tion, particularly for manufactured homes and for the smaller starter- homes that have all but disap- peared in many major metro areas and made it impossible for millions to buy their first home. At the federal level, low-income housing tax credits have been one of the most successful capital- generating tools for affordable housing creation and preserva- tion for more than three decades and should be expanded and strengthened. And bolstering assistance for first-time homebuy- ers and low-income renters could incentivize the creation of more affordable housing supply where the demand, and the need, is greatest.

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