Former HUD secretary Cisneros weighs in on how to help home buyers
How can homeownership be a more sustainable proposition for middle- and low-income households? When I posed this question to former Housing and Urban Development secretary Henry G. Cisneros, his response was immediate and surprising.
In a marked departure from other housing experts, he did not discuss mortgages, foreclosures, adjustable-rate mortgages or any other financial factors. Instead, his focus was on construction quality.
"The number one thing for me is the quality of construction because I have seen so many things go south," said Cisneros, who has advocated for affordable housing for more than three decades. "When construction is poor and there are obvious signs of deterioration after 30 years or less, it is not just a problem for the individual homeowner, it impacts an entire neighborhood and an entire community. We are going to be building so much in the future, and we need to get it right."
Cisneros is now executive chairman of City View, an investment firm based in San Antonio and Los Angeles that focuses on urban real estate and metropolitan infrastructure.
"The quality issue has been a serious problem in the home-building industry in the mid- and low price range for a long time," he said. "It was exacerbated in the boom because we outstretched the capabilities of the workforce. During the boom, buyers of new houses showed me things like wall cavities filled with trash and the lunch leftovers of workers. It speaks volumes about the supervision of the workforce and the standards of workmanship."
He cited problems dating to his days as mayor of San Antonio during the 1980s. "We had to buy back houses because poor ventilation was making the owners sick from mold and bad foundations caused houses to crack down the middle," Cisneros said.
New business model
When asked for solutions, Cisneros offered several suggestions. Enacting construction standards at the local level could bring some relief, but this will be a slow and arduous process that builders are not likely to embrace and might even actively oppose, he said. In his home state of Texas, for example, Cisneros said, "the home-building industry has planted itself in every regulatory agency that oversees home building."
Cisneros said that an effort spearheaded by the industry could have more wide-ranging impact and he called upon the industry, and its trade association, the National Association of Home Builders, to address the problem by developing national standards for construction quality.
Some problems could be avoided if buyers were more knowledgeable about the process, Cisneros added. He would put a spotlight on the home builders' business model with its emphasis on first-time costs, which affect a sale price, instead of the lifetime costs, which can be significantly higher if cheaper, less-durable materials were used when the home was built. When the replacement costs for lesser-quality windows and roofing, for example, are factored in, buyers will be paying much more for the house than the sale price and the monthly mortgage payments would indicate, Cisneros said.
Educating home buyers on these points is crucial, Cisneros said. If they understood the importance of higher quality for the items that affect the long-term costs of homeownership and demanded these things, builders would have to respond.
Another way to improve the quality of home building, Cisneros suggested, would be for mortgage lenders to raise their requirements. This would bring change, but at a snail's pace. A faster route would be through Fannie Mae and Freddie Mac. If the two quasi-government corporations that purchase home mortgages for the secondary market set quality standards that loan originators must meet, Cisneros said, that would have an immediate, nationwide effect.
Cisneros also emphasized the need for educating buyers about the purchase itself. "The sales contract can be so complex that even a lawyer with legal sophistication will not always catch things," he said.