Homeownership for low-income Americans is a major policy plank for countless political leaders, as well as an intensively studied issue among nonprofit and research organizations. The interest is unsurprising: Getting more people at all income levels into homeownership is broadly seen as a net positive for a nation’s economic and social health.
In recent years, programs hoping to help low-income buyers enter the market have proliferated throughout the lending industry. Targeted loans, favorable rates, and other measures are designed to boost homebuying among those not in the top echelon of earners.
But do those programs work? Many industry leaders seem to believe so. Last week Freddie Mac announced a “multi-billion affordable housing bond program,” one that “provides a 3% down payment solution to families with income at or below 80% of area median income” in order to “give investors a vehicle to invest in underserved communities.”
Yet despite the growth of those programs, the homeownership rate among the poorest Americans has remained stubbornly low. Research indicates that in 2000, the bottom fifth of American earners had a homeownership rate of around 45%; by 2018, that number was hovering anywhere from 30% to 38%, depending on the research.
Some experts insist that is proof these programs are needed more than ever. “Down payment constraints have always been a major impediment to expanding low-income homeownership,” Wayne State University Professor of Urban Affairs George Galster told The Mortgage Note. “So, efforts to modify that constraint are to be commended.”
“I do find this program helpful,” Portland Housing Center Lending Director Heidi Martin said of the Freddie Mac initiative. “It offers a low down payment option that is an alternative to FHA and its high mortgage insurance. The buyers get a break in the interest rate as well as the mortgage insurance rate. I use the program often.”
On the other hand, even advocates of aid to low-income buyers acknowledge their efforts can distort the market, hurting other struggling buyers.
Politico reports that a plan from Senate Finance Chair Ron Wyden (D-Ore.) giving a $15,000 tax credit to buyers “has drawn fire from affordable housing advocates who warn that it could backfire by fueling rising home prices and exacerbating the racial wealth divide because it would be available to all Americans purchasing their first homes.”
David Dworkin, president and CEO of the National Housing Conference, warns this approach could exacerbate racial inequity in homeownership. “A tax credit for all first-time homebuyers is going to expand the racial homeownership gap because it is essentially increasing homeownership in an environment where people of color already have so many other disadvantages.”
And Robert Silverman, an urban and regional planning professor at the University of Buffalo, expressed concerns that—while “programs like this can help low-income homebuyers lower their costs (down payment requirements, mortgage insurance, loan origination fees, etc.) when buying a home”—the Freddie Mac initiative, at least, might ultimately fall short of that goal.
“In the case of the program … Freddie Mac sets the income limit at 80% of area AMI (average median income),” he said. “I would guess that most of the loans are closer to the high end of that limit. So, the program is probably less relevant to the poorest households, who face several financial barriers to homeownership.”
“It is also probably less relevant to people located in places where housing prices are on the high end,” he added, “just because people below 80% of area AMI would probably be pressed to find a home that they can afford, even with the assistance the program offers.”
Edward Pinto, the director of the American Enterprise Institute’s Housing Center, noted that “efforts by the federal government to ‘make housing more affordable’ have been around since the late 1950s and early 1960s.”
“The homeownership rate—there’s a lot of things that one has to take into account here—but the homeownership rate in 1964 is not particularly different than that of today.” He argued that the biggest impact on that rate “has been the drop in the number of couples getting loans as compared to just single borrowers.”