By Fed Communities Staff

Jennie Blizzard

Hello and welcome to the third and last seminar in the Federal Reserve’s 2023 Community Development Research Seminar Series: Keys to Opportunity in the Housing Market. I’m Jennie Blizzard with Fed Communities. Today’s seminar, co-hosted by the San Francisco and Boston Feds, will explore efforts to increase rental affordability, access to home ownership, and housing stability. We’ll also discuss how those efforts have implications for the ability of housing policy to reduce wealth disparities by race and income. During today’s 90-minute session, there will be two panel discussions and an opportunity for you to ask questions.

First, we would like to share that this session is being recorded and the views shared do not necessarily represent those of the Federal Reserve Board of Governors and the Federal Reserve System. We’ll be taking questions throughout portions of today’s session, and you can submit them in the Q&A tab. I’ll now turn it over to Elizabeth Kneebone, Assistant Vice President of Community Development Research at the San Francisco Fed, to help frame today’s discussion. Take it away, Elizabeth.

Elizabeth Kneebone

Apologies. Thank you, Jennie. And thank you all for joining today’s session, which as Jennie mentioned, is the final in our series this year. The series this year has as a whole focused on different aspects of the affordability of housing and recognition of the really vital and important foundation that stable, affordable housing provides, particularly as we think about providing individuals with a platform from which they can participate in the economy, work towards economic stability and mobility. As Jennie mentioned, today, we’ll be delving into ways to improve rental affordability in our first panel. In our second panel, we’ll be looking at access to home ownership. And throughout our discussions today, we’ll be asking the speakers to think about and engage with what these discussions mean for efforts to address disparities in wealth by both race and income.

That’s a lot of ground to cover in our 90 minutes together, but one reason we wanted to bring these threads together in conversation with each other today was the recognition that writ large housing policy in the United States has been and continues to be asked to do a lot of really important things. So from stabilizing low-income households to reducing disparities, longstanding disparities in access, whether that be access to certain types of communities, to higher income, higher opportunity neighborhoods, access to home ownership, and through home ownership providing a pathway and for many a primary pathway to wealth generation. So that’s a wide range of really important policy objectives, and at times those things can be in tension with each other. Part of having a more holistic conversation about housing policy today is we’re hoping that we can, one, surface some evidence, bring to light some of the things we’re learning or thinking about in terms of rental affordability, home ownership access, implications for the wealth gap, but also point to potential future research directions that would help continue to build that evidence base.

Think about potential policy considerations that could inform policy decisions moving forward and hopefully begin to grapple with efforts to harmonize or maybe even prioritize among the multiple really important policy objectives that fall under that umbrella of housing policy in the United States. We have a really terrific lineup of experts with us today to help us tackle these really thorny and challenging questions. In our first panel today, the moderator will be Peggy Bailey, who is Vice President of Housing and Income Security at the Center on Budget and Policy Priorities. I will be handing this over to Peggy, who will take us through our housing rental affordability conversation. After that panel, Peggy will hand things over to Rocio Sanchez-Moyano, a senior researcher at the Federal Reserve Bank of San Francisco, who will be moderating our discussion on home ownership today. And with that, I will turn it over to Peggy. Thank you.

Peggy Bailey

Thanks, Elizabeth, and thank you to the Federal Reserve Board for having this today. As many of you may know, I served as a Senior Advisor to Secretary Fudge at the beginning of the Biden-Harris administration, and one of the great gifts was to get to know Alanna McCargo, who was also a Senior Advisor at the time, and now is President of Ginnie Mae. And it was great. It was one of the first times that as a rental expert being in the same room with the home ownership side of the world and how much synergy we had together and how we thought about things and really trying to bridge this gap, as Elizabeth talked about. I couldn’t be more excited that you recognize that as well and we’re having these panels on the same webinar together.

We want to dive right into the panel discussion. And as Elizabeth said, the first panel is on rental assistance. And to help us dive in, we’ll be joined by Ingrid Gould Ellen, who is the Paulette Goddard Professor of Urban Policy and Planning, and she’s also the Director of the Furman Center for Real Estate and Urban Policy at New York University. Ingrid will touch on our efforts to improve the delivery and take up of rental assistance, including the double pickup problem that she’s highlighted in her research around lease-up rates, our opportunity to learn lessons from unconditional cash transfers in the Bay Area, and offer a framework for how to think about shallow subsidies or emergency rental assistance.

And then following Ingrid, we’ll be joined by Sara Kimberlin, who is the Executive Director and Senior Research Scholar at Stanford Center on Poverty and Inequality. Sara will share research on the role of a renter’s tax credit and the role that, that could play in helping us close the affordability gap, including key research design considerations that could affect its reach and impact. And then, following their presentation, I’ll have a few moderator questions and then we’ll take questions from the audience. So please fill those in for the team. And with that, I will pass it off to Ingrid.

Ingrid Gould Ellen

Terrific. Thank you, Peggy, and thank you to the Federal Reserve for organizing this conversation and inviting me. I am going to start with our current approach to delivering rental assistance, the Housing Choice Voucher Program, which currently serves 2.3 million low-income renters across the United States. And I want to start with the fact that research shows that vouchers provide significant benefits to the households that successfully use them. Most directly, they reduce rent burdens, they reduce household crowding, as well as the risk of homelessness. And in addition, some research shows that housing vouchers improve other outcomes beyond housing, like reducing poverty and improving children’s performance in school. And there’s also work suggesting that vouchers provide more benefits than public housing, perhaps due to the greater choice of children’s whose families receive vouchers when they’re young, enjoy improved educational and labor market outcomes when they reach adulthood as compared to children who remain in public housing.

But all that said, no program is perfect and the voucher program has some significant limitations. So if you can go on to the next slide. First, the program includes minimal checks on rent setting. So what does that mean? It means that it’s the way that the program is structured, there aren’t many safeguards in place to prevent landlords from simply charging the maximum allowable rent or the local rent ceiling or payment standard. Because tenants pay 30% of their income, basically, they have no incentive to find a unit that rents at less than that local rent ceiling. And so the only check on landlord rents are the rent reasonable tests that local housing agencies conduct. But given capacities, limited capacity, those tests are imperfect. Second, the voucher program does not seem to be doing a great job at opening up a broad diversity of neighborhoods. Most voucher recipients live in neighborhoods that are very similar to the neighborhoods that they lived in before they received their voucher and have similar levels of poverty.

And third, the program imposes high administrative costs and burdens on tenants, housing agencies, and on landlords. And this relates to the fourth issue, which I think may really be the true Achilles heel of the voucher program, which is that many voucher recipients are unable to use their vouchers to rent homes after waiting and waiting and waiting to receive them. And so I’ve been working with my MYU colleagues, Cathy O’Reagan and Sarah Stroshack to estimate voucher lease-up separate rates across the country. And we find that in 2019, if you can go to the next slide, after waiting an average of two and a half years on the wait list to receive vouchers, that only three in five households who receive a voucher are able to successfully lease homes with those vouchers. And if you just go to the next slide, two in five have to return their voucher to the housing agency because they’re unable to find homes to rent within the allotted time.

And we suspect that actually the voucher lease-up rates have fallen since 2019 given the tightness of the rental market and the lack of turnover in low rent units right now. So how can this be? If you go to the next slide, it’s extremely difficult to find voucher-suitable homes. And those are homes that, A, charge a rent that’s below the local payment standard, they pass housing quality inspections, and they’re owned by a landlord who is willing to rent to landlords there. In many jurisdictions in the U.S., it is legal for landlords to outright refuse to house voucher holders. And sadly, if you go to the next slide, lease-up rates are even lower for Black and Hispanic voucher recipients. In 2019, only 26% of Black voucher recipients, for instance, leased-up within 60 days of receiving their voucher as compared to 39% of white voucher recipients.

Now, if you go to the next slide, you can see that these racial disparities shrink when you look at lease-up rates within 180 days of receiving a voucher, but they still persist. And so the question is, what can we do about this? What can we do to boost lease-up rates? And I think there’s some more incremental changes that we could make that are really important, if you go to the next slide, and many of these are going on across the country. Now, one is to extend search times. This helps to both boost lease-up rates overall and reduce racial disparities. Secondly, you could expand the use of small area FMRs, and HUD announced last month that it was expanding the number of metropolitan areas where housing authorities are required to use basically zip code level rents or small area FMRs to set voucher ceilings, which basically makes homes affordable to voucher holders in a broader array of neighborhoods across a metropolitan area.

And now PHAs, by January 1st, 2025, I think PHAs in 65 metropolitan areas across the country will be required to use small area FMRs, and that covers about 45% of voucher holders. Third, we could enact more local governments and state governments could enact and, importantly, enforce source of income discrimination laws. Our existing research shows that enactment of such laws allows voucher holders to reach a broader diversity of neighborhoods, and we believe that they are likely to increase lease-up rates as well. Although, we’re currently working on that research. And another promising reform would be to streamline inspections to make them quicker, more consistent, and less burdensome on landlords. Landlords typically point to inspections as being lengthy and arbitrary and as being their number one concern with the program.

But we could also consider more radical approaches, if you go to the next slide, which I hope we’ll talk about today, which is that local housing agencies or states could provide subsidies directly to tenants that they would be required to spend on rent. And this is really how the original voucher that was evaluated in the 1970s was designed. This really takes the landlord out of the program and so there’s no need for landlords to interact with the local housing agencies. And this would reduce the administrative burden on local housing officials and on landlords, which could potentially encourage more landlords to participate in the program. It also may give tenants more of an incentive to find lower rent units, which I can talk more about later. Alternatively, we could actually provide unrestricted cash that’s completely untethered to housing.

And if you go to the next slide, the Furman Center’s Housing Solutions Lab is currently testing the impacts of a direct cash transfer program of unconditional cash assistance to a set of randomly selected families that are exiting rapid rehousing in the Bay Area. So half of them are going to receive $1,000 a month for a year. Half of them are going to receive $50 a month for a year. We’re working with two wonderful partners, Compass Family Services and Hamilton Families. And we are grateful for funding from google.org and the HUD and the Robert Wood Johnson Foundation. We are planning to measure the impact of that unconditional cash assistance on housing stability and homelessness as well as other outcomes. And I am going to stop there in the interest of time and turn it over to Sara.

Sara Kimberlin

Thank you so much. And I’m so excited to be here as part of this seminar. One of the things I think I’m most excited about this event is the way it’s connecting the dots between a lot of different conversations that aren’t often held in the same space. So seminar overall, we’re talking about renters and homeowners in the same conversation. My presentation here, a big picture objective, is to connect the dots between the conversation about traditional renter subsidies and tax credits as another approach that can be used to help renters address affordability problems. That is not always talked about in the same conversation with other kinds of renter subsidies. Next slide, please. Specifically, I’m talking about renter’s tax credits today. I’ll be talking about work that I’ve been working on together with Elizabeth Kneebone from the San Francisco Federal Reserve.

And so looking at renter’s tax credits, first of all, just setting up baseline, what is a renter’s tax credit? This is a tax credit that’s provided when filing personal income taxes available to renters who meet certain eligibility criteria. So, for example, renters who show high rent paid compared to their income. And it can be made refundable so that low-income families or people who just don’t owe very much income taxes can still receive the credit as a payment. That would be similar to tax credits like the earned income tax credit or the child tax credit. Next slide, please. And so, why think about tax credits for renters? I think one of the key motivations here is just the point that Ingrid highlighted that existing housing subsidies really have such an important impact for the people who do receive them and succeed in using them. But there are many struggling renters who are not reached by these programs, so it makes sense to think more broadly, what are other tools that could be used to help address the renters who are not getting the help they need to address their affordability problems?

A second point in terms of motivation is that the tax system already provides substantial tax benefits for homeowners, things like the mortgage interest deduction, most notably, but little to nothing specifically for renters. So they’re left out of those benefits. And then, thirdly, just that tax credits, we know that they offer a really viable vehicle for delivering direct cash support at scale, and we saw this in a very compelling way during the pandemic era with the pandemic era stimulus payments and with the expanded child tax credit. We saw lots of resources delivered directly to individuals throughout the country via the tax system via refundable tax credits. And prior to that, that was also building off the long track record before that of the earned income tax credit and child tax credit and other refundable credits. So we know this is something that can be done as a way to get resources to people at scale.

Next slide, please. A key motivation here too is, we’ve done some analysis using American Community Survey data looking at tax units constructed using the methods that we’ve used for the California Poverty Measure Project at Stanford, also working with Public Policy Institute of California on that project, just to put some concrete data to the idea of who could be reached by tax credits and what is the need when you look at the data. This is looking at California specifically. Who has rent burden based on income net of taxes? So after accounting for tax liabilities and credits, and also after accounting for payroll taxes. And I think the key point here is that, even among tax filers who are receiving credits like the earned income tax credit or additional child tax credit or state tax credits, there’s still significant housing affordability problems.

So these are almost a quarter of the federal EITC recipients in our data analysis still have rent burden even after accounting for the credits that they’re receiving, even after accounting for their income net of taxes. So there’s clearly an unmet need there. Next slide, please. Some potential features of renters tax credits, and I’m going to highlight some things that make them different from rent subsidies like the Housing Choice Voucher Program. So one issue is that tax credits leverage the existing infrastructure we have in place for tax filing and administration. So both in terms of peak, being able to apply for support, we have that tax filing infrastructure in place. And then also, in terms of being able administratively to deliver resources to people, we have a tax credit disbursement agency infrastructure in place.

Secondly, there’s just a lot of flexibility to tailor renter’s tax credits in different ways. So you can tailor to different target populations. You can tailor the depth of the subsidy. You can tailor the total costs of the credit across all the people receiving it. There’s a lot of flexibility to focus on different kinds of policy objectives. Third, it does not have to require active landlord participation. Landlords can be blind to who receives it. So, again, this is something that makes it distinct from other kinds of supports. So we can talk about trade-offs and pros and cons of that. And then, finally, the credit is available to all eligible renters without wait list or geographic constraints. Essentially, any person who claims the credit, when they file their taxes, will receive it. And so that’s very different from our other subsidies where there is a wait list or a pot of money that runs out.

It offers a different way. You can be sure that everyone who applies for it will receive it. That has to be accounted for in the program design, but also means that you’re reaching a different set of renters or with a different reach than traditional or other approaches. Next slide, please. So in thinking about how to design renter’s tax credits, there are some key questions that need to be thought through. One is a set of questions related to who’s eligible for the credit. Some questions here are, rental subsidies like Housing Choice Vouchers are provided per household, but within the tax framework, it makes more sense to think about tax units most likely from the administrative point of view. Although, there could be ways to manage it either way. That’s one issue that has to be thought about.              

And then other issues too, whether the eligibility is linked to rent paid or to a standard rent like fair market rent, whether the credit is available to all renters or to a targeted subset of renters. Next slide, please. One of the things in terms of tax units versus households, and when we look at our data analysis, we see actually there are quite a few households that include multiple tax units, so that’s definitely something that has to include multiple tax units. So that’s definitely something that has to be accounted for in the credit design. Also note that a lot of these households that include multiple tax units are overcrowded. So again, there’s an opportunity there potentially for policy design questions. Next slide please.

A second set of questions for credit design relates to how much recipients receive from the credit. So I’m thinking about whether it’s refundable, whether it’s a flat amount or variable amount, how large the credit is. Is the objective to close all of the renter’s affordability gap or just part of their gap? Next slide please.

And in terms of thinking about refundability, one of the key things in looking at the data, just seeing that among the tax filers with rent burden, many of them do not have tax liability at the federal level or at the state level. So those filers would benefit only if the credit was refundable. So that’s again, issues to keep in mind and data that can be used to help think about what design features are important for achieving different policy objectives. Next slide please.

And finally, just some key implementation considerations. Just that credits can be designed at the federal or state level, but with different objectives and constraints. Level of complexity affects both how individuals are able to access it in the administration capacity. Credits can be dispersed in a lump sum or periodically. It’s different trade-offs there, thinking through the impact on landlord behavior and rental markets, especially for credits at scale. And then also thinking carefully through who risks being missed through a tax credit approach. And looking forward to talking more about all these issues.

Peggy Bailey

Great. Thanks Ingrid and Sara. So on switching the slides, Sara, I have a clarifying question for you. And so if we could go back to slide 22 or 23, could you explain what a tax unit is?

Sara Kimberlin

Yes. Sure. So a tax unit would be the group of people who you would expect to file taxes together. And I’ll say in the analysis that we’ve done, we’ve looked at whether or not someone actually files taxes or is actually required to file taxes, who would be grouped with them in a tax unit according to IRS rules basically of who…for example, a married couple would be typically grouped together. A single parent who is a head of household with their dependent children would be grouped together. So again, we have a methods to trust stack together so that you can see this is the unit that would put their resources together on a tax return.

Peggy Bailey

Great. Thanks. I just want to make sure. All right. So Sara and Ingrid, I want to invite you in for questions and I have a couple to get us started as the audience starts to feed in more to you. And I want to start Ingrid and go to you to talk. So Sara listed out some of the pros of thinking through tax credits. Can you share some of the pros and cons? And Sara, I’ll come back to you for some cons on the tax credits piece as well. So Ingrid, could you let us know some of the pros and cons of some of the rental assistance models you laid out?

Ingrid Gould Ellen

Yeah, so thank you. I mean, I think that the biggest pro for providing, let me just say bucketing to provide assistance directly to renters is that it takes landlords out of the equation. And so providing assistance directly to renters can help to eliminate the double take-up challenge that currently plagues the housing choice voucher program. Now to be clear, I don’t think the assistance would be completely invisible to landlords as they need to be able to… They’re going to vet prospective tenants. They need to be able to ensure that the tenants have enough sufficient resources to afford the rent. And so they probably would have to know that that assistance is going to renters to see that assistance.

But they still might be more likely to accept tenants receiving direct rental assistance because they no longer have to enter in a contract with a housing authority and deal with the administrative requirements of the program. I think another benefit, big benefit is that it also could, and to the theme of this overall event is that it could encourage more savings. It gives tenants a greater incentive to actually find lower cost units and doesn’t and provides more of a check on landlords in just increasing rents up to the ceiling amount. And I can explain more about that.

But I think that the risk of it, I think the big risk is what are the checks on housing quality? And the current voucher program uses these home inspections to ensure that renters are living in decent quality homes. But again, landlords complain that those inspections are inconsistent and they’re time-consuming. They have to hold their unit off the market for several months. And so I think a serious challenge of direct rental assistance, again, providing subsidies directly to tenants, is how do we ensure that those subsidized renters are going to be living in decent quality units without adding, while still keeping the program simple to use?

And I think there are things you can do. I mean, you could have self-attestation with… a PHA could provide a checklist to tenants that they would have to check off so there would be a guide to tenants of what are the quality issues they should check for. You could do virtual inspections, which a lot of housing authorities did during COVID. I don’t think we know that much about how well that worked. You could do in-person inspections of units after a tenant occupies the units and you take away that delay. You could have random audits of unit quality or frankly you could remove inspections. Most controversially remove them altogether. I mean, I think that that is controversial, but there’s an argument to make that housing quality in the United States has really improved over the last few decades. And so maybe we don’t need to worry as much about housing quality as… I think it’s clear we don’t need to worry as much about housing quality as we do about housing affordability, that that’s the real challenge that is facing low-income renters today in the housing market.

Peggy Bailey 

Thanks, Ingrid. That sounds great. Yeah. And also helping improve legal assistance for tenants so that they can complain about housing quality and empowering them to-

Ingrid Gould Ellen

That’s right.

Peggy Bailey 

…is another piece too. Yes.

Ingrid Gould Ellen

Good point.

Peggy Bailey 

So Sara, you laid out the pros of the tax credit. Can you share some, if any, of the tax credit approach?

Sara Kimberlin

Sure, yeah. And I should say maybe, I think there’s trade-offs to the different types of ways of reaching renters. So pros, I think maybe just differences or ways that a renter’s tax credit can reach different people or reach them in a different way than other kinds of subsidies, but not necessarily to say that it’s better or instead. I think a lot of these approaches are complimentary and that going back to that point that Elizabeth raised at the beginning, that renters have different needs at different times. The same renters have different needs throughout their life span. So I think it’s helpful to talk about different kinds of approaches.

I’ll say some of the potential limitations of a renter’s tax credit I think are really important to keep in mind and thinking about potential impact of this kind of approach is the issue of who risks being missed. So in particular, there is a way that tax credits are more accessible than a lot of other types of renter subsidies because if you file your taxes and claim the credit and you’re eligible, you do receive it. And there is a really established infrastructure out there for filing taxes.

At the same time, depending on who you’re aiming to reach with a renter’s tax credit, there could be a significant set of people who have no other reason to file taxes. They’re not required to file taxes, they’re not eligible for other kinds of refundable credits. And so if they’re not in the habit of filing taxes and they have no other requirement to do it, that could be an access barrier potentially. And so I think it’s important to pay attention to in doing the analysis, pay attention to who wouldn’t otherwise be expected to file taxes and what would be needed to make sure that they were able to be reached by this. Or are there other approaches that would be better and a more effective way of reaching those individuals or households? So I think that’s one of the key questions to consider.

Peggy Bailey

Yeah. And following that line and thinking about our goal is to make sure that everyone who needs help paying rent has it and a recognition of where there’s a group of people whose incomes just aren’t enough to where 30% of their income would cover rent costs or the housing owner. How are you thinking about, and Ingrid, maybe I’ll ask you this first. But policy happens in incremental ways and we need to figure, and there’s a lot to figure out about what’s the best ways to get to that goal. So how are you thinking about all of the experimentation on the different kinds of models and how that can lead us to making sure everyone who needs help paying their rent has it?

Ingrid Gould Ellen

Yeah. So I think that there are starting to be experiments around the country. I hope there will be more of them. Right now, I feel like we have one tool in the toolbox and it’s a really great tool, but I think that people face different kinds of needs at different stages, as we’ve said. And so I think we need to experiment with different approaches, including, by the way, just short-term emergency rental assistance, which is something we learned a lot more about during COVID.

But that I think one important point is that many renters face financial shocks or income volatility, and yet we have no federal program right now to address those shocks or volatility that might lead to the loss of housing. And so I think there’s a good argument for a standing federal emergency rental assistance program to help unsubsidized renters manage those short-term financial shocks without losing their homes. And that could be a more incremental approach. I think we need more research and evaluation though as we’re doing these experiments and as we’re trying out different models, we really need to make sure that we have the research in place to understand what their impacts are and to be able to compare across them both the pros and the cons.

Peggy Bailey

And Sara, how are you thinking about that march toward universal assistance?

Sara Kimberlin

I do think one of the things that’s noteworthy about a tax credit approach is that there is no wait list. There is no… Everyone who files and claims it does receive something. So I mean, that also of course has budgetary implications that there needs to be enough money allocated to be realistic for the number of people who would be anticipated to claim the credit. But this is one way where I think it’s helpful to think about a role that tax credits can play even as a shallow subsidy rather than a deep subsidy, but as something that could potentially reach people who are not being reached by other programs. Because I think one of the things that happens when we have programs that have spending caps or when there are wait lists, is we effectively have a policy that says, “We recognize that you have an affordability challenge and you need help, but we’re not going to help you because we don’t have the resources available to help you.”

And I think if we are recognizing that there are people with affordability burdens, I think it’s helpful to expand our thinking and think, “Is there a way that all those people can be touched?” Because we have identified that there are people who need assistance who aren’t being touched by assistance right now. So just expanding to think about a broader view of the possible ways that that could happen. And so this is one approach you can take that has different features from the other kinds of subsidies that are out there right now. So it might be a way to think about that.

Ingrid Gould Ellen

Can I just say one more thing, jump in, Peggy and just say to add to that that I think it’s also important as we evaluate these and build the evidence base evaluating these different models, we really also need to think about not just how many people are assisted, but who is getting assistance, who is getting assistance under these different models. It’s how do these different models and reforms change the composition of who is getting assistance? Yeah, and I think we don’t know enough of that right now about that.

Peggy Bailey

Right. Well, and can you be a little…I think it’d be good for the audience for you to be a little bit more specific when you’re thinking about that. I don’t want to lead you in the direction I think you’re going, but yeah, could you just dive into that a little bit?

Ingrid Gould Ellen

Yeah. I mean, I would say that one of the things that I think is most troubling about the research that we have found on take-up of housing choice vouchers or lease-up of housing choice vouchers is these really persistent racial disparities. And also, I didn’t talk about it, but also spatial disparities. So it depends on people who are receiving vouchers coming from Black and Latino neighborhoods are also less likely to be successful with their vouchers. So it’s not only, I mean, we should also worry that simply a lot of people aren’t able to use their voucher. But I think that we really… I’m worried about this also means that we may not be getting the vouchers to the families that need them the most potentially. And so I think that we really should be thinking as we reform the voucher, it’s who is, are we able to reform it in directions that not only expand the number of families that can be helped, but also ensure that we are targeting appropriately and targeting to provide assistance and give assistance to the people who need it the most.

Peggy Bailey

Great, thanks. I just wanted to make sure folks understood where you were going with that. Sara, so I’ll start with you on this question around funding because you mentioned that a full tax credit obviously takes a lot of resources. So how are you thinking about the mix of state level action in this space versus federal resources brought to the table?

Sara Kimberlin

Yeah. I mean, I’m glad you asked that question because I think, thinking about the potential state level role is also really important and another way of connecting the dots across all the different levers that can be pulled to help address this issue. But I think there are very different constraints, different budget realities at the state level and with it across different states, actually across the same state at different points in time too. But there is a lot that can be done. And there are actually, I should say also, there are quite a few states that do have some form of a renter’s tax credit, often framed as a property tax circuit breaker credit, but often in a very narrow, small targeted form, which is also helpful to know that there are models out there that have been implemented and can be built on and can be looked to see who benefits and different kinds of administrative issues that arise. So I think that’s helpful to know too.

But yeah, I think one of the things, again, that’s compelling to me in terms of thinking about the potential with renter’s tax credits for exploring is that there is just a lot of flexibility in how they can be designed. And so at a state level, you might think about things like how does this wrap around what’s available at the federal level? Are there specific things within this state that make us know that this target population is something that should be specifically targeted? Are there specific budget realities? We know this much money is available, so that means that we can either choose to give a small credit across this many people or a large credit across this much more narrow population.

So I mean, you can think about the same issues at the federal level where the potential funding available is much larger. And so then that raises different kinds of questions. But I think also an important thing across all of these is thinking this becomes very clear within a tax credit framework because you have state and federal taxes at the same individual’s file. But I think there’s a broader implication there too, of just thinking about how all of these pieces fit together. So how a person receiving a state credit, what federal credits are they also eligible for? How does this affect people who are receiving a housing choice voucher or are living in LIHTC housing or other kinds of… How do all of these policies fit together from the individual perspective and from the overall budgetary and administrative perspective as well?

Peggy Bailey

Thanks, Sara. So Ingrid, in your presentation you talked a little bit about how cash assistance, as an example, might allow you to get around the landlords and landlords may not be able… Source of income discrimination could be lessened. Could you talk about other… But still there are other barriers. So could you talk a little bit about your work in understanding landlords and landlord incentives in engaging with folks who need assistance regardless of the vehicle of that or the specifics of that assistance?

Ingrid Gould Ellen

Yeah. So I mean, I think landlords have, I don’t know, you could say good and bad reasons for not being willing to house people who are using vouchers. The bad reason is that they have stereotypes about what kind of tenants those voucher holders will be. But I think we need to take seriously the concerns that landlords raise about how difficult it is to sometimes work with local housing agencies. I think we need to take seriously the concerns that landlords voice about the housing inspection process and that it requires them to hold their units off the market for several months. And so in a sense, what direct rental assistance does is it doesn’t deal with the first problem because again, I don’t think you can implement it in a way, or I haven’t figured out a way to implement it in a way that would be so that landlords would be completely unaware of the fact that this household is receiving assistance from the government.

So if landlords bring stereotypes about people who are receiving government assistance, I don’t think it will address that problem. But what it will address is the complaints that landlords have about the administrative burdens of the voucher program. And so I think that’s important and I mean, I think it could go a long way in improving and increasing the number of landlords willing to participate. But again, I think we need to run a demonstration program and I hope we do that. And I hope that we will learn the answer to that question of how much it could boost landlord participation. And like I said, I think it will also have the benefit of preventing landlords from simply… There’s some evidence that in some markets, landlords are just charging what the ceiling rent is because they can, and that would eliminate that ability or reduce that ability.

Peggy Bailey

So in our last question, and to tie into the next panel on homeownership, Ingrid, I’ll start with you and we have a little less than a minute left to talk about just in thinking about rent, that continuum from renting to homeownership and wealth building. How could these models help stabilize renters to get on that path of wealth building?

Ingrid Gould Ellen

Yeah. That’s a good question. Right. I mean, and it’s worth stepping back to just make the basic point, which maybe we haven’t said, is that rent eats up an increasing share of household budgets and that leaves renters, especially low-income renters, with very little leftover for other expenditures after paying for rent. And those razor-thin margins leave very little ability to save potentially for homeownership or for other critical investments. And so I think there are reasons to believe that providing assistance directly to tenants will encourage more savings, but we need more evidence.

Peggy Bailey

Great. Well, thanks Ingrid, and thanks Sara. And so that wraps up our first panel and I will pass it on to Rocio to do our second one.

Rocio Sanchez-Moyano

Thank you. Thanks so much to everyone on our first panel and to everyone in the audience for sticking with us as we turn to look at the homeownership side of this equation.

As Elizabeth mentioned in her intro, equity from homeownership is a primary form of wealth accumulation for many American families. And differences in the homeownership by race and ethnicity are also affecting the racial wealth gap. I’m very excited today to welcome Jung Choi, senior research associate at the Housing Finance Policy Center at the Urban Institute and Carolina Reid, I. Donald Terner Distinguished Professor in Affordable Housing and Urban Policy at UC Berkeley to talk about their work and to share perspectives on the relationship between homeownership, wealth accumulation, and racial wealth gaps.

We’ll start today with Jung, who will help set the stage for the current state of homeownership and some recent innovation that might help start closing gaps before turning to Carolina to help us understand why we’ve seen so little progress in closing homeownership gaps. And then we’ll pivot to a conversation between the panelists and take questions from the audience. So I encourage you to be dropping those into the Q&A And with that, I will turn it over to Jung.

Jung Hyun Choi

Great. Thank you, Rocio. Hello everyone. I’m very excited to be here. Like Rocio mentioned, in this presentation, I’m going to share some recent trends in the racial homeownership gap and also mention two recent policies that can potentially help to increase BIPOC homeownership. So next slide and the slide after, and the slide after. This one will show that early in the pandemic there was a lot of concerns. I’m sure many of you who have attended these events were also worried that the racial homeownership gap would increase during the pandemic. However, to our very pleasant surprise, we actually have seen a slight reduction in the racial homeownership gap between 2019 and 2021. If you look at the very end of the graph, you can see that for all race and ethnic groups there has been an uptick in homeownership rate and that happened more among the Black and Hispanic community. During this time period, about 40 states experienced a decline in Black-white homeownership gap, and 41 states experienced a decline in Latino-white homeownership gap. Next slide.

There’s many numbers here. I’ll just skip this number because of time constraints. But then in the more recent data, we’re also seeing that Black homeownership and Latino homeownership is continuing to increase, although the increase is not that large. Okay, so next slide.

During 2019 and 2021, I want you to focus on the yellow and the blue bar here. What we’re seeing is that we have experienced that for all race and ethnic groups, we have seen a growth in the younger homebuyers. So for our homebuyers among Blacks, among age 45, their share increased about four percentage point between 2019 and 2021. For Hispanic communities, the younger homebuyer share increased about five percentage points. Next slide.

However, at the same time we also find that share of homebuyers with lower income declines. So here I also want you to focus on this blue and yellow bar here, and that’s homebuyers with household income below $75,000. And for Black homebuyers that share declined by about five percentage point. And for a Latino homebuyer, that share declined about four percentage point between these two years. And during this time, the share of buyers who purchased through FHA channel also declined. And these are typically more used by Black and Latino homebuyers. And some did suggests that if homes were more affordable during this period and the credit was not as tight, we could have seen a greater increase in Black and Latino homeownership rate and many of these lower income households could have benefited from the historically low interest rate. Next slide.

Now we know that the mortgage rate has spiked during the last two years, so the rate is currently around 8%. And then with the substantial rise in interest rate, what we are seeing in the market is that in 2022 compared to 2021, a significant drop in home purchase mortgage origination, we’re also seeing an increase in mortgage denial rate. We’re seeing an increase in borrower decline because of high debt to income ratio. And we’re seeing an ongoing decline in the low-income borrower’ share. And also we are seeing an increase in borrowers putting more than 20% down. So this means that many households are putting more down payment to either both decrease the DTI ratio and also potentially decrease the monthly mortgage payment. And then we’re also seeing an ongoing decline in the share of FHA borrowers. So all these numbers suggest that the likelihood of further reducing racial homeownership gap is more and more challenging in the current market. Next slide.

Now, I’m going to briefly talk about two recent innovative solutions to reduce the racial homeownership gap. I’m going to be slightly slow here because I think there’s more interesting findings from these two recent research that we did on first alternative data and the other is on first generation DPA Program. Let’s go to the next slide.

There are largely two methods of incorporating rental data into mortgage underwriting. First is to include them in the credit scoring, and the second is to examine rental payments separately during mortgage underwriting. And both have gained greater momentum in the past few years. However, the current mortgage underwriting still uses traditional FICO scores, which do not include rent payment data in credit scoring. So there is about 53 million adults without a traditional credit score. And then you can see from the graph there, disproportionately higher share of Black and Latino adults do not have a FICO score or have FICO scores below 620. So including the rental history data into credit score could potentially help those without a credit score have a credit score, and it could potentially improve those with a credit score to have a higher credit score that could potentially lower their monthly mortgage payment. So next slide.

This page shows how including the rental data can affect credit scores. Currently, both Fannie and Freddie are making it easier for multifamily property owners to report rent to the free credit bureaus. We have partnered with Esusu, a FinTech reporting company and found that those with no or thin files a greater improvement in their credit scores once 12 or 24 month of positive rental payment is included in the credit scoring. Next slide.

You can question still whether incorporating positive rent payment history in mortgage underwriting increases racial equity. So we know that Black and Latino households are more likely to be renters and they are more likely to have no or thin credit files. So including rental history data could disproportionately help them. However, we also know that greater share of renters of color are rent burden and are financially struggling so the net impact is unclear. So in the left figure, what we show here is that we do find that Black and Latino renters have a lower share of those who pay 12-month rent on time. However, if you look at the right figure, Black and Latino households account for about 26% of all households, but still among those who paid 12-month rent on time, they account for about 36%. So on that, it can disproportionately benefit them.

And I have only one minute left, so I’ll just go to next slide would be showing that what happened in the mortgage underwriting. If you include rental history data, you do get a disproportionately higher share of households of color who are emitted, re-approved in the mortgage underwriting process. And the next slide, two slides. I’ll just focus quickly on the first generation DPA program.

So our research shows that the children of homeowners are significantly more likely to be homeowners because they can get the down payment support from their parents. What we’re looking at here is that we’re going to look at the impact of first generation DPA program on access to homeownership by different race and ethnic groups. So there’s different groups of first-gen homebuyers, but it largely depends on how you define borrowers’ parents tenure status. And finally, the final slide in the next page. I think that has been dropped.

So the final slide, there was a slide that shows that if we actually apply first generation definition to the income eligibility criteria, we have a much higher share of BIPOC households that we can serve. The potential number of DPA recipients does decline if we actually add in the first generation homebuyer definition. But Carolina’s going to talk more about this. I think in this market with a very tight supply shortages, if we kind of make a better job of really better targeting the potential people that we want to serve, it could help to help the households of color to access the homeownership market without putting too much upward pressure on home prices. So that is my conclusion of my presentation and I will pass it to Carolina.

Rocio Sanchez-Moyano

Thank you.

Carolina Reid

Thank you so much, Jung. And I want to echo everyone else’s thanks to the Fed for putting together this session, for inviting me. I’ve already learned so much. In my remarks today, I’m going to pick up where Peggy and the last panel left off and try and connect the dots between rental assistance, the trends in access to homeownership that Jung shared, and hopefully spark a broader conversation about the relationship between renting, owning and the racial wealth gap. Next slide please.

I want to set the context for the discussion by highlighting that the last 20 years have seen unprecedented volatility in the housing market as well as record-breaking house price increases. This chart based on data compiled by Robert Shiller captures house price changes way back to 1890. You can see the early volatility of an unregulated housing market at the turn of the 19th century and the impact of the Great Depression. What’s remarkable to me is that the subsequent 50 years were characterized by relatively consistent price stability. That fundamentally changes in the early 2000s, first with a subprime boom, then the foreclosure crisis, and then the recovery starting in around 2013. My first broad point is that this means that renters and homeowners are experiencing a very different market than households in the 1950s and ’60s with significant implications for both access and wealth building. Next slide please.

The second broad point I want to make is that supply matters. In the next few slides, I’m going to present some stylized facts about the San Francisco Bay Area, Atlanta, and Chicago to illustrate how supply constraints, with the San Francisco Bay Area being the prime example, worsen outcomes for renters and both directly and indirectly impact homeownership access. As you can see here, both the price swings and increases over the past 20 years have been more severe in San Francisco than in Atlanta and in Chicago. So what are the implications of these trends? Next slide, please.

First, the lack of supply and high housing costs means that rental assistance policies that Ingrid talked about don’t go as far and Sara talked about. This slide shows that the average per unit cost of a voucher in San Francisco is over $2,200, more than double the cost of a voucher in Atlanta or Chicago. This means that more public subsidies are needed for every household. In a resource constrained environment, fewer households are served. Limited supply also means that households have a harder time finding a unit and many vouchers go unused, as Ingrid shared in the earlier panel. Tight supply also leads more households to stay in subsidized housing well after their income should be high enough to support moving into the private market, but the gap to market rents is too wide.

While we might think that this is far removed from the issue of homeownership, it’s not. Without housing stability and affordability, renters and particularly renters of color face greater constraints in saving for a down payment and they are also less likely to be able to pay off other debts and build their credit scores. Based on other research I’ve done, rental assistance can lead to homeownership. Households that receive housing assistance, for example, those who live in public housing or who have a voucher do transition directly into homeownership, especially in lower cost markets and particularly when the subsidized rents gives them the opportunities to save. Next slide.

In contrast, high housing costs make it harder for renters to build the financial security they need to access homeownership. This slide shows residual income for renters at different income levels between the ages of 25 and 35 when most households have historically transitioned into homeownership. You can see that at every income band, renters in San Francisco have about a thousand dollars less in residual income after paying rent than renters in Atlanta or Chicago. This gap goes away at incomes over $150,000, suggesting that incomes only align with the local cost of living at the higher end of the labor market. The high cost of housing thus provides a direct barrier to buying a home, but also an indirect barrier for renters who can’t save and lay the financial foundation that is needed for homeownership. Next slide.

These factors converge to constrain access to homeownership, especially for non-Hispanic Black households. The patterns I’m showing here are similar for Hispanic households, though the disparities are attenuated slightly. In 1980 in California, nearly one in two Black adults between the ages of 35 and 45 owned their home. In 2021, that share was just 23%. We see declines for non-Hispanic white households as well. But overall, white households are still accessing homeownership more often than Black and Hispanic households and doing so earlier in their life course. Next slide.

Which brings me to another key point. We shouldn’t only be worried about price. The volatility in the market over the past 20 years means that when a household buys is just as critical to building wealth as whether they can buy. This graph shows the index change in the number of home purchase mortgage originations for Black households. Here again, we see that supply matters. Mortgage originations have rebounded more for Black households in Atlanta than in San Francisco, but when it started to rebound also matters. Black and Hispanic households were largely cut out of the mortgage market between 2015 and 2015 when house prices were at their lowest. This means that the gains in house price appreciation from trough to the current peak have mostly accrued to non-Hispanic white households and investors.

So while the 2019, 2021 trends that Jung indicated, that showed an increase in the homeownership rate for Blacks and Hispanics, the question is, are they buying at the top of the market and will not see the same increase in values and potentially even a decrease, especially as interest rates rise? They are also likely to pay more for credit over the long term, reducing their equity gains given that they’ve bought at higher interest rates. Next slide.

All of this translates into an inconvenient truth. There is no doubt that homeowners build more wealth than renters, and homeownership remains a critical path towards wealth building in the U.S., but homeownership is not necessarily a path to closing the wealth gap. This chart shows average home equity, the difference between the value of the home and the size of the mortgage for different households over time. The home equity gap between white and Black households was 88,000 in 1989. In 2019, it was 135,000. These disparities are a direct result of the age when they bought their home, when and where they bought their home, as well as disparities in the pricing of credit and in appraisals. These factors all converged to preserve and in some cases, widen the wealth gap. Next slide please.

What does this all mean for policy? I think it means we need to pay attention to both goals, expanding access to homeownership, as well as thinking creatively about how we can close the wealth gap. They are not the same. Certainly, we need to continue to work on increasing the supply of homes, especially smaller homes and improve credit access, like alternative credit scoring. But we also need to invest more in renters and recognize that affordable stable housing for renters can help create pathways to ownership. For example, could we connect the renter’s tax credit with a match savings account that could serve either as a source of down payment or insurance against income shocks? Could we create a pilot where we support households in LIHTC to transition into homeownership to open up a subsidized unit for another household? Or could we invest more in the Family Self-Sufficiency or Section 8 Homeownership programs. Investing in renter stability, savings and greater access to rental units in higher resource neighborhoods could also confer many of the benefits that are generally achieved only through homeownership.

Finally, until the last 20 years, most homeowners built wealth through the forced savings of paying a mortgage each month, not from two-digit annual price increases. The last 20 years of booms and busts represent an era of speculative returns to housing. I don’t have an answer to this, but I do wonder how we return to an era of more price stability so that there aren’t such large price swings and their winners and losers. Thank you. I look forward to the discussion.

Rocio Sanchez-Moyano

Thank you so much Jung and Carolina. We have a lot to talk about here, but I actually want to start by taking a step back and saying, okay, why are we talking about homeownership anyway? And I think Carolina, you were alluding to this in your last slides. Are owning and renting just choices that households make about their tenure, about what suits their lifestyle better or is it really not a fair apples-to-apples comparison? And in what ways does policy tip the scales? And Jung, I think I’m going to start with you here.

Jung Hyun Choi

Yeah, thanks for the question. I think Sara also touched on this when she talked about the tax benefits. So I won’t go into that route. I think a lot of our research shows that on the long run, sustaining homeownership really does help you to build wealth. And especially our research finds that back to Carolina’s point, the earlier you’re buying, we find that on average people have higher housing wealth near retirement. And what I want to also point out here is that homeownership in the U.S. is very unique because we have this 30-year fixed mortgages. So it also guarantees housing stability. And then you saw in my presentation there has been a spike in the interest rate over the past two years, but then existing homeowners didn’t really experience much of the change in the housing cost.

It is actually the potential homebuyers and those who are renting who has been more impacted by changes in monetary policies and other kind of economic market changes. So I think there’s still a lot of disproportionate benefits towards owning a home in the U.S. And the problem right now is accessing homeownership has become more and more challenging. So that is actually creating a wealth inequality among those who have access to homeownership already or have sufficient resources to access homeownership.

Rocio Sanchez-Moyano

Want to add anything, Carolina?

Carolina Reid

No, I think that Jung summarized a lot of the benefits to homeownership and why homeownership access is still a really important issue. I think the other thing that is often forgotten is that most households do want to own their home. And we underemphasize in our economic analysis the importance of place and community as part of that process. And so I think valuing those aspects of homeownership is also really important. I think my biggest concern is that the way we set up our homeownership system, it tends to reward the people who have intergenerational wealth, who have more stable employment and higher incomes who are able to buy in neighborhoods that see greater house price appreciation. So all of these sorts of factors around how homeownership exists in our country intensifies that inequality. I will say too, and I think I tried to make this point in my presentation as a housing policy system, we overinvest in homeowners and we underinvest in renters.

Rocio Sanchez-Moyano

And I think that’s a great lead into the next question I had for you too, which was thinking about what is reasonable to ask of homeownership policy, what should it be accomplishing? Is the goal wealth building? Is the goal stability? Is the goal neighborhood quality? Can we achieve all those things at once? Is that too much to ask? And if it is too much to ask, which of those or something else should we be focusing on? And Carolina, I’m going to start with you this time.

Carolina Reid

You’re throwing me the easier, the hard question here.

Rocio Sanchez-Moyano

That’s right.

Carolina Reid

So I think homeownership policy should be focused on reducing disparities in access and recognizing that federal government policy has really been, especially historical federal policy, has been a primary instigator of those disparities, right?

So I think we should definitely be focused on that, removing barriers to access, and I’m super excited by some of the work Urban is doing around these alternative credit scoring models and how they might be able to facilitate that. Also excited about sort of special purpose credit programs that can really target resources to communities that have historically been excluded. But I think the question of, what should housing policy do about home ownership? Is it about stability, or neighborhood characteristics, or neighborhoods of opportunity? That should be the goal of both our rental and home ownership policy, right? If we could build and invest in communities so that there are not these disparities or these patterns of residential segregation so that everybody gets to live in a healthy neighborhood and everybody gets the benefit of affordability and stability, then all of a sudden the differences between owners and renters go away a little.

Jung Hyun Choi

Yeah, I’ll second everything Carolina said. And then I just wanted to add, I really liked your graph that you showed on the volatility of the home prices over the years, and it does show that when there’s greater housing volatility, in a lot of the other markets, you also see an increase in speculative behaviors. So in a lot of other countries where there’s greater price volatilities, there’s not only speculative behaviors, but also there’s perception towards owning a house like switches too. So people think, “okay, I’m going to buy homes to earn big money.” And what happens in those kinds of markets is… We’re also seeing in this market too, when there has been sufficient lack of affordable housing, that the share of cash buyers and also share of investors have increased in the home purchase market.

That means the average renters are facing greater challenges in accessing home ownership. As I mentioned before, that will also impact the overall wealth inequality in this country between those, again, who have resources to gain access to home ownership and build wealth, especially when the price is rising so high, and those who are just left out of the market and still in the rental market, were also seeing the prices also going up in the rental market. So as Ingrid mentioned, it’s really difficult for renters to save up for future home ownership in the current market situation.

Rocio Sanchez-Moyano

Actually…go ahead, Carolina.

Carolina Reid

Well, I was just thinking too, based on your point, Jung, there was a question in the chat about, how does this influence NIMBYism and people’s decisions around how they are thinking about their communities? And I do think that people are starting to expect their house prices to continually go up, and that is changing their behavior patterns about what they think home ownership should be. And I think that that also leads to decisions around how they want their community to be, but also creates that sort of famous loss aversion, right? That they don’t necessarily want to see prices go down, even though we know that overall the market needs to calm down further to be more equitable outcomes.

Rocio Sanchez-Moyano

And related to the volatility piece and the speculative piece, there’s a question from the audience around, do we have any data on to what extent these price fluctuations, that volatility is due to corporate purchasing, investor purchasing of single family housing, home ownership housing is then being turned into rental housing, versus people who are buying it as primary residences or sort of historic smaller mom-and-pop landlords as opposed to big corporate landlords?

Jung Hyun Choi

That’s a great question, and I know that Ingrid also wrote a paper about this recently. Actually, there are fluctuation by markets, but then there’s much less share of institutional buyers in the current rental market than a lot of people think they are. So it is actually a smaller portion of the rental market than we see.

What I see from the data is actually, in the past two years, the number of institutional buyers have declined, and actually the share of mom-and-pop landlords have slightly increased, although you see from all my data that all mortgage origination and home buying activities have declined significantly. So I don’t think there’s a single actor that we should blame on the rise, the volatility of home prices. I think what happened during the housing boom was more on the demand side of how we had all these weird lending products, predatory lending in the market. In the last 10 years it’s more driven by the lack of housing supply. So the reasons for the changes in home prices are very different in the first 10 years of 2000, and from what happened since 2012.

Rocio Sanchez-Moyano

I want to pivot us a little bit now to talking about the policy responses. So we’ve been talking about how if we don’t figure out a way to address this, we’re actually just making the racial wealth gap bigger and bigger because the access gaps are getting bigger, the rental to ownership transition is getting harder as it was laid out both in your panel and in the first one. So what would you like to see in terms of shifting policy in this space? And Jung, you talked a little bit, you were starting to lay out some promising programs in your slides, and we got a question in the chat too around the use of technology in reducing racial disparities in mortgage applications. And I wonder if he asked questions around AI underwriting, ML underwriting, or other ways that we can tweak the access question.

Jung Hyun Choi

Yeah, I think those are very good questions. We actually recently, last week, published a paper on AI and racial disparities in mortgage underwriting, so I can send you that paper if anybody’s interested. I think I would more talk about some of the recent research that I did on alternative data and rent reporting is that there’s also a lot of mistrust among communities of color. So what we see from some of the early Freddie Mac data is when the board is asked to provide the bank account data so the lenders can evaluate the 12, whether they have efficient rental credit history, payment history to kind of see if they can reevaluate and then potentially give access to home ownership. A lot of the Black and Latino households decline that offer. And there’s more research to be done in the space, but I think a lot of it could be misunderstanding or it could be also mistrust about the lending community because of all the things that happened to that community for a really long period of time.

So I think there’s a lot of work to do. I know that technology, I think there’s a lot of discussion on if we already feed in a lot of data that has been impacted by a systemic racism, it’s not really going to help to reduce the racial home ownership gap. So I think we really do need more work on, to think about how to expand the credit box to those who have been historically discriminated, but also do it in a safe and a fair way so we don’t create that technology that sort of perpetuates the racial inequality, but then we just say, “Oh, this is all because of machine learning AI and it’s all bias free,” because that is not really what’s happening behind the scenes.

Carolina Reid

I would second everything that Jung said on an individual level, like this idea that we need to expand the credit box in a responsible way for individual homeowners. I think there is so much room to innovate around other strategies to think about creating access to homeownership. So I do think this idea of a renter’s tax credit could be bundled with something like a match savings account. That match savings account would help to give renters who don’t want to become homeowners, stability. Access to savings, they could use that for other things like education, small business development, or just as an emergency fund. I think that there are innovative ways to think about what’s happening in property markets so that the outcomes of those property markets are less unequal. So for example, we know that there is an increased purchase of small multifamily properties, so these are properties between two and six units, by investors who then flip them. Those rental units become less affordable.

What if we had a fund that allowed people in the community to purchase those homes, to purchase those multifamily buildings? Maybe it’s one homeowner and they provide three affordable rental units for others in their community. Maybe it’s a condo structure where all four units are sold to members of the community. I think that would be an interesting model. There’s a lot of interest from communities about expanding access to community land trusts. And so, could we revive some kind of federal fund that would make it easier to purchase homes and put them into community land trust structures? I think there’s more opportunities to connect the idea of home ownership and the stability, and that it confers with practice around community development, because I think that the individual focus alone isn’t going to get us to a more equal racial wealth gap. A more equitable distribution of wealth.

Rocio Sanchez-Moyano

And coming back to some of the questions around the wealth building. One, we have a question from the chat here is, if we go back to the pre 2000 model of pretty stable home prices, does that still mean wealth accumulation, or do we need the speculative environment for the home owning to be a good investment from a financial perspective for a family?

Carolina Reid

I don’t think so, right? For a very long time, and in the majority of markets, people-built wealth through home ownership because of the forced savings mechanisms of paying into a mortgage every month. That forced savings coupled with the protection against an inflationary environment was really the primary way people-built wealth, and I think is one of the reasons why home ownership does confer more benefits than renters. Renters aren’t seeing the value and the equity accumulation from those consistent payments month to month. So I don’t think we need that speculative environment.

Jung Hyun Choi

I would just second that, but I do think that… So the last 10 years of home price appreciation, it’s questionable whether we would see that much growth rate in the future. I think one of the things that I really want to see is more affordable housing. So if there’s more supply in the market, we’ll probably see less increase in prices. But then what we want to see also is more access. So what’s happening right now is those who are able to access home ownership, they’re just building great wealth, and all of those who are just left out of the market, they’re kind of constantly losing that opportunity.

So we kind of, I think maybe as a society, it might be a healthier system if we actually give access and opportunity for a greater share of the population so they can all kind of generate wealth, although the share of the pie may be smaller by households, but then overall we’ll have a more equitable system where a greater share of the population can benefit from home owning. We just don’t want to focus on a small share of population who already have greater wealth so they can access home ownership more easily and just build more and more wealth from the system that is currently in place.

Carolina Reid

Yeah, I want to just add two points to what Jung said. First, we do need to focus on the supply, and builders are building larger, more expensive homes than during the period where we saw the last expansion of home ownership. So I think we also have to focus on what kind of stock we’re building, where we’re building it, and making sure that that stock is also more affordable. The second thing is, the reason why wealth is so important in this country is that many of the things that wealth affords isn’t provided by the government. So it’s about being able to pay for college for your children. It’s about ensuring that you have enough savings in retirement.

In other countries where home ownership isn’t as prominent, the wealth itself is less important because they do have access to broad-based healthcare, they do have access to free college, they do have social safety nets that provide that kind of support. And they have, in many places, a lot less racial segregation in neighborhoods. And so you can live in lots of different neighborhoods without being a homeowner and without having a lot of wealth. So I think we also have to rethink the role that wealth plays in society and how it, in and of itself, creates these inequalities.

Rocio Sanchez-Moyano

I think that’s a great setup for my next question, which is, as we maybe try to transition to a place where that wealth inequality matters less, connecting us to the first panel, how do we build more opportunities for wealth building outside of home ownership, or even in tandem to, if home ownership gains tend to be smaller going forward than they have been in the last 20 years? That’s a hard one, so I’m just going to put one of you on the spot if you don’t come off mute.

Carolina Reid

I think there’s been great experimentation in the asset building field around different models, so I would certainly lean into thinking about how we can scale some of those models. I think a lot of it has to do with the tax code, and this is one of the reasons I’m so excited about our renter’s tax credit. As long as the tax code continues to benefit those who have more wealth, who are homeowners, we are going to see those disparities increase. And so I think reforms to the tax code would be where I would put my energy.

Rocio Sanchez-Moyano

Great. And we’re getting close to out of time, and I do want to just bring us back to, today’s a research panel. And so we know what research questions should we in the field be asking? Where are the gaps? Where do you think we really need to do the work to set ourselves up to make these policy innovations?

Jung Hyun Choi

I can start. I think just going back to Carolina’s slides on timing of home buying matters, I think a lot of the research that we have done and I have seen from others is based on past market situation when the housing price was more stable. So in those kinds of market, we did find that home ownership is a better financial investment in a lot of the cases than investing in a stock or bond market. But I think there is a question whether that is still true in the current market. So I hope to see some research updated to see if home ownership is still the key goal of wealth building in this country, and then I think we should also compare those outcomes by different markets and also different race and ethnic groups.

And the other thing that I would like to see from the research is that the number and the share of households of color is going up in this country, and then I would like to know what kind of housing that they would prefer living in, and then, do our current supply of housing actually meet the demands of the future generations?

Carolina Reid

Yeah, I second all those. Start working, Jung. It’d be exciting to see you do all those research projects. I would like to see more research that actually connects the dots between these different sectors. So we’ve got increasing research that’s looking at zoning reforms and the supply responses, and the affordability that comes with those zoning reforms. I would love to see those connected to access to home ownership. So can we bridge the gap between zoning supply and home ownership? I would love to see more demographic analysis both age, but also recognizing that the United States is becoming a multiracial, multi-ethnic society. The number of people who indicate on the ACS that they have multiple races or ethnicities is dramatically increasing, and so how does that play into these disparities that we see in home ownership and in wealth building?

And then I’d also really love to see more pilot and demonstration projects. I think, for example, the work that Ingrid is doing on direct cash assistance and really being able to see how different forms of assistance lead to different outcomes, I think we could have more demonstration projects like that in the home ownership space that could really help us to tease out which interventions are the most impactful and cost-effective.

Rocio Sanchez-Moyano

Great. Thank you so much, Jung and Carolina. I think this was a really great conversation. Thanks for joining us today. And with that, I’m going to turn it over to Beth Mattingly of the Boston Fed.

Beth Mattingly

Thank you, Rocio, and thank you to all of our panelists. When Elizabeth and I started putting this together, we really wanted to think about these dual priorities of home housing, home ownership, housing policy as providing stability through affordable monthly payments and wealth building. And we really wanted to push a little bit not to bifurcate, so that on the one hand was stability, and on the other hand was wealth. And I really think the panels did a good job in pushing our thinking in that direction.

One of the things that we started with, with Ingrid, was what some of the housing assistance programs do in terms of reduced poverty, increased education, increased health. All things that matter over the long term for one’s ability to accumulate and protect wealth. And that timing is a theme that came out a lot today. What do people need in the immediate term? And maybe that is housing assistance versus over the intermediate, which may be something more in the form of a refundable or otherwise renter’s tax credit. Once people get into homes, people need help getting into homes. That may be down the road, or for some people sooner. And then people need help protecting their wealth in their homes, making sure they can afford their payments, have reasonable mortgages, and can maintain their homes to preserve equity.

Timing, we also see, matters in the market. Carolina talked a bit about what happens if you buy at the peak? What happens if interest rates are high? What does that do for your equity in your home? We also saw that place matters, because where you buy, some of the difference in the racial wealth gap is not only due to home ownership rates, but differential home equity values and differential growth. So this leaves us a lot of potential opportunities for thinking about reducing gaps. One thing I want to push us on, we’ve really talked about that floor, the people who are really struggling to get into homes, to protect their wealth once they’re in, to have affordable rents so that maybe they have some room to save, but that’s going to only go so far. That will raise the floor, but when we think about reducing what our enormous racial wealth gaps, I’d just like us to keep thinking about that distance between those in the median and those at the top, and what else we might need to think about if we really want to push towards racial equity.

So I liked where the last panel ended. I wanted to end with, what more do we need to know, and how do we best think about housing policy and practice with the dual goals of stability and wealth increasing, and creating more equity across race and ethnicity for both on the stability front and the wealth front? So in closing, the last thing I’ll point to is that this isn’t the role of housing policy alone, and one of the questions we’ve been kind of pushing at is, are we expecting too much of housing policy? How much can it do in and of itself? And Carolina really spoke to this when she talked about what wealth allows us to do in our society, but there may be other ways.

We want people to have wealth so that they can achieve the outcomes, to have the opportunities that wealth provides, but other policies can also make those opportunities more equitable and offer us another insight, another lens to view this through. So I’m excited for the thinking that’s emerged here. I know I have lots of questions as well as some new ways of thinking. I hope you do as well. And I hope throughout we can continue the conversation in conferences, in research discussions. And again, I want to thank everyone, especially our panelists and moderators for being here today. Thanks so much. Have a great afternoon.