In 1995, a young U.S. Department of Housing and Urban Development (HUD) researcherapproached then-HUD Secretary Henry Cisneros to lay out an opportunity. The American economy was about to take off into an almost unprecedented economic expansion, and, with the tailwinds of this growth at its back, the young man suggested that the government could help grow the homeownership rate to historic levels. Given recent studies touting the societal benefits of ownership, this plan appeared sound to Cisneros.
“It seemed like the right thing to do,” says Cisneros, who is now chairman of CityView, a Los Angeles-based developer of affordable housing. “It was a way we could take the general prosperity of the country and bring it home to individual families in the form of an important rite of passage to the middle class—homeownership. It’s also good for minority families and good for immigrants who want to sign on to the American dream.”
When Cisneros left HUD in 1997, the homeownership rate was up to 66 percent. (It started at 64 percent, when Bill Clinton, for whom Cisneros served, took office in 1992.) Little did the former secretary know just how far the next administration would push home-ownership and just how far the American economy would collapse as a result. The dream of the American home pulling underprivileged families to the middle class crashed and burned in piles of shoddy underwriting, aggressive mortgage brokers, greedy realtors, no-document loans, incompetent regulatory oversight, lazy rating agencies, and, yes, misguided government policy.
In 2008, the country voted for change, and in the fallout of that election came attempts to tame an unwieldy federal budget, handle a flood of jobless 20-somethings, and address more than three-year-old questions of foreclosure and credit availability still plaguing the capital markets. As a result, no one knows how low the homeownership rate will go. But one thing even the most ardent housing industry lobbyist will tell you is: The balance is tipping further in the direction of apartments than it has in a long, long time. And before anyone knows what is really happening, policymakers need to decide what, if any, resolution is needed for current federal backstops of the housing industry, like Fannie Mae and Freddie Mac and the Mortgage Interest Deduction program.