Jonathan Fox, a real estate agent with Coldwell Banker Residential Brokerage Dupont/Logan, writes an occasional column about Washington-area housing issues.
If you’ve been paying attention to this year’s political debates, you’ve probably read or heard a lot more about the inability of the younger generation to get a foothold in this economy than in previous elections.
The financial challenges in today’s world are real. And to some groups it often feels like the hill to climb gets steeper by the year. We can all agree the world economy has changed tremendously in the past 50 years and that owning a home (not renting for a lifetime) remains a central component to building wealth and financial security.
Both political parties during the course of this year’s presidential campaigns have heard from young people about the lack of affordable housing, stagnant wages and rising education costs. As a Washington-based real estate professional and a millennial, I face those issues every day.
It’s no secret that the Washington-area housing market is pricey, consistently ranking in the most expensive places to live in the United States. It’s also true that our local housing market is dependent on younger buyers leaving their rentals to become first-time buyers. This provides a market for the sellers of entry-level homes, who can in turn buy so-called move-up properties. The owners of the move-up homes can then buy more expensive homes. It’s like one big game of dominos where home owners are dependent on the buyer behind them in order to move forward.
College debt is one of the biggest obstacles to homeownership. According to the National Center for Education Statistics, the average annual cost of attending a four-year public university reached $18,632 in 2015, up from $1,238 in 1970. Even adjusting for inflation, college expenses still rose significantly — to $18,632 in 2015 from $7,756 in 1970.
According to the Institute for College Access and Success, nearly 70 percent of people who graduated from public and nonprofit colleges in 2014 had student loans — the average amount per person was $28,950. While the number of graduates with student loans rose only four percentage points from 2004 to 2014, the share of debt rose at more than twice the inflation rate, according to the organization.
At the same time, housing prices are soaring. In 1970, the median housing price in Washington was $21,300, or $81,800 after being adjusted for inflation. Today, the median home price in Washington is around $500,000, according to Zillow.com. Since 1970, the price of an average home in Washington has increased by roughly 2,247 percentage points. Even after we experienced a collapse in housing, the costs to owning property in Washington are five times more in comparison with incomes than they were in the early 1970s.
Here are a few ways the next president and policymakers can make housing more affordable for young people:
• Give an incentive for younger people to become homeowners sooner by providing those with loans the ability to refinance student debt to a fixed lower rate. The federal government has a large stake in people owning property (hint: taxes and retail spending) so an ease up on the interest portion of the student loan to a new homeowner is not a bad trade.
• Allow residential homes in neighborhoods around urban communities to be rezoned to multifamily units. As it stands now, there are many properties zoned as R2 or R4 (otherwise considered single-family non-sub dividable) though if you allow those structures, including old churches and decrepit commercial spaces to more easily be rezoned to accommodate smaller condos, you can actually create affordable housing. Working with the branches of government responsible for zoning to remove some red tape and make the process of rezoning more feasible would go a long way to get developers moving into smaller, more affordable spaces.
• The federal government should expand programs for people who may have difficulty coming up with a large down payment. Fannie Mae has a new HomeReady mortgage program that offers loans with a down payment of 3 percent or 5 percent and reduced private mortgage insurance costs. Gift funds can be used for the down payment, and lenders and sellers can help with closing costs.
• The federal government should support programs aimed at easing housing costs for young people. In 2014, the Federal Housing Administration proposed a program called Homeowners Armed With Knowledge (HAWK) designed to give reductions on mortgage insurance premiums to first-time borrowers who participate in housing counseling approved by the Department of Housing and Urban Development before they make an offer on a home as well as before and after settlement. But the program was not funded in the budget.
• In Virginia, the First-time Homebuyer Savings Plans program, which took effect in 2014, is designed to address the lack of down payment money by allowing future owners to accumulate up to $50,000 in cash, investments or insurance policies that will be exempt from state taxes as long as they’re designated for homeownership costs. More programs like this are needed.
As I drive through upper Northwest Washington neighborhoods where small outdated Cape Cods cost seven figures, I often wonder where things are heading. What will happen when all of the baby boomers systematically cash out and retire to Florida or elsewhere, and there aren’t enough buyers able or willing to pay the prices?
More millennials would buy if housing were affordable.
It’s tougher today for younger people in Washington than in generations past to obtain a stake in the system, which typically spells trouble for any economic model. An inclusive market is the only market that will bring prosperity to all.