Conference Presentation, Panel
Rebuilding Housing Finance: The Next Steps
Milken InstituteEd DeMarco, John Bartling, John Delaney, Nagendra Jayanty, Rick Lazio, Phillip Swagel
- A transition to a private capital-dominated housing market structure is projected to fully materialize over a 20 to 30-year period contingent on investor interest and capital allocation.
- Over the next 20 years, approximately 2 million low-income housing tax credit units are expected to expire from compliance periods, creating a material risk in specific regions.
- During the 2020 to 2030 decade, 88% of new housing demand is forecast to originate from minority demographics, including Asians, African Americans, and Hispanics.
- The number of majority-rental metropolitan areas increased from six of eleven in 2006 to nine of eleven in the present, a trend indicating a structural shift in housing tenure.
- The home ownership rate, historically stable at 65-66%, currently sits at 64% and may decline further by two to three percentage points to establish a new benchmark.
- Single-family rental units are projected to continue growing into the foreseeable future, reaching a market size nearly equivalent to the multifamily industry.
- Between now and 20 to 25 years from now, the population of Americans over age 65 is expected to rise from 48 million to 80 million, driving peak demand for 40,000 senior housing units annually.
- Government offloading mechanisms for housing finance guarantees are envisioned to operate on a regular "vintage basis" rather than on a transaction-by-transaction securitization schedule.
- Multi-borrower securitizations enabling non-bank lenders to finance smaller single-family rental owners are anticipated to be a continuing positive trend providing market liquidity.
- Mortgage insurers may shift from covering the first 25% of loan losses to offering coverage up to 50% if GSEs and FHFA pursue this expansion.
- Private capital is estimated to provide low rates for the first $75 billion of investment, with incremental capital beyond that threshold commanding higher rates due to insufficient supply for affordable rates.
- The current housing system is expected to remain functional but suboptimal if regulatory and policy developments continue to impede market innovation.
- A gradual transition toward a private housing finance system is projected, involving the formalization and subsequent reduction of government guarantees over time.
- Homeownership levels may decline further as improvements in rental housing quality, services, and fit and finish make renting a more attractive long-term solution.
- A projected supply shortfall exists where current senior housing production of roughly 20,000 units annually fails to meet the estimated peak demand of 40,000 units per year.
- Homeownership rates are viewed as an unreliable metric for community stability, suggesting a need to shift policy metrics toward other areas of public policy.
- Continuing trends of delayed marriage and single living are expected to drive demand for smaller housing units and lifestyle-adapted stock.
- Continued government engagement in housing finance similar to historical levels poses a risk of market distortion through an excessive "thumb on the scale."
- If private markets find the proposed housing finance structure attractive, participation is expected to expand over time driven by legislative incentives.