Showing papers in "Housing Policy Debate in 1992"

The Spatial Mismatch Hypothesis: Three Decades Later

Abstract: This paper provides a comprehensive review of the extensive scholarly literature dealing with the effect of housing market discrimination on the employment and earnings of Afro‐American workers. From a historical perspective, it examines a variety of empirical studies that are as relevant today (particularly in light of recent events in Los Angeles) as they were when this discussion began nearly 30 years ago. More specifically, it reviews studies that have attempted to determine the extent to which serious limitations on black residential choice, combined with the steady dispersal of jobs from central cities, are responsible for the low rates of employment and low earnings of Afro‐American workers. The paper concludes with a discussion of policy recommendations and suggestions for continued areas of research. Three major categories in need of policy prescriptions are examined: housing, employment, and schooling. There is an assessment of the gains made since the inception of the spatial mismatch ...

Research on discrimination in housing and mortgage markets: Assessment and future directions

Abstract: This paper presents a holistic conceptual framework within which various research topics related to discrimination may be interrelated and evaluated. It then critically analyzes extant research relating to central components in the framework: the detection of discrimination, causes of discrimination, consequences of discrimination, and policy initiatives related to fighting discrimination both directly by deterrence and indirectly by attacking segregation and the prejudices it spawns. A great deal is known about the nature of private acts of housing discrimination, but little about which policies are most effective in combating such discrimination. On the other hand, relatively little is known about the extent of housing discrimination perpetrated by local governments and public agencies and about both differential treatment and disparate impact forms of discrimination in mortgage and related (appraisal, insurance) markets.

Impacts of housing and mortgage market discrimination racial and ethnic disparities in homeownership

Abstract: There are persistent differences in homeownership rates across racial and ethnic groups. Homeownership rates for whites are over 20 percentage points higher than for blacks or Hispanics. This paper uses a model of the housing tenure decision to gain a better understanding of these racial and ethnic differentials in homeownership and employs a decomposition technique that has been applied to labor market discrimination to report the results of the empirical testing of two hypotheses: (1) race (ethnicity) influences the probability of ownership through differences in household endowments (income, education, age, gender, and family type) and market endowments (price and location); and (2) race (ethnicity) directly influences the probability of ownership through racial or ethnic discrimination and other factors that may be correlated with race or ethnicity. We find endowment effects important in explaining the persistent racial and ethnic disparities in homeownership. In brief, logit analysis of 1989...

The ongoing experiment with “regulation from below”: Expanded reporting requirements for HMDA and CRA

Abstract: The Home Mortgage Disclosure Act (HMDA) and Community Reinvestment Act (CRA) were enacted in the 1970s to curb redlining, the discriminatory lending practice whereby financial institutions refuse to make mortgage loans to certain neighborhoods based on the racial composition of those areas or the age of their housing stock. HMDA and CRA implicitly sanctioned an important role for local citizen monitors, whose “regulation from below,” as it has been termed, was believed to be needed to augment the formal enforcement apparatus. In 1989, Congress amended both of these laws by expanding publicly available information on the lending practices of financial institutions. The paper reviews the early experiences with the new requirements and suggests some of the factors likely to determine whether grassroots organizations seek further reforms. While the use of “de facto” bank examiners succeeded more than many knowledgeable observers expected, it remains to be seen whether community‐based watchdogs can ke...

Discrimination in urban housing markets: Lessons from fair housing audits

Abstract: This paper examines the use of fair housing audits to study housing market discrimination and summarizes the key findings of the Department of Housing and Urban Development's two national fair housing studies—the Housing Discrimination Study and the Housing Market Practices Survey. Fair housing audits provide a uniquely effective tool for analyzing discrimination, for monitoring compliance with fair housing law, and for assembling evidence of discrimination in individual circumstances. Because of the findings from fair housing audits, there is widespread recognition that housing discrimination remains a serious problem. In order to combat discrimination more effectively in the 1990s, the audit methodology should be further refined and extended to all stages in the housing market transaction.

Financing multifamily rental housing: The changing role of lenders and investors

Abstract: A broad consensus exists that there are significant barriers to accessing capital markets for multifamily rental housing, particularly for housing targeted at low‐and moderate‐income households. While there is a growing secondary market for multifamily mortgages, the market is in the early stages of development and remains quite small. Expanding this market requires increasing standardization of mortgages, increasing credit quality with better underwriting and credit enhancement, and educating investors as to the risks and returns of multifamily investments. In addition, dramatically improved data collection on the performance of multifamily investments and analysis on the determinants of success are needed.

The decline of special circuits in developed country housing finance

Abstract: Housing finance traditionally has been an area of intervention by governments, especially through the creation of special circuits for funding flows. This paper analyzes these special circuits in five developed countries (Denmark, France, Germany, United Kingdom, United States) and tracks their evolution through the 1980s under the pressures of inflation, interest‐rate volatility, deregulation, and integration of international financial markets. Political and market forces seem to have eroded both the reasons for having special circuits and the ability to maintain them. All of the subject countries experienced some degree of decline in these circuits and moved toward integration of housing finance within competitive, market‐driven financial systems. This trend will probably continue in the 1990s.

Market segmentation and lender specialization in the primary and secondary mortgage markets

Abstract: This paper provides a comprehensive evaluation of market segmentation and lender/purchaser specialization in the primary and secondary mortgage markets. It describes and assesses the 1990 Home Mortgage Disclosure Act (HMDA) data, which for the first time provide detailed information on the borrower and neighborhood racial and income characteristics of mortgage loan originations and securitizations in the primary and secondary mortgage markets. Evidence presented in the paper indicates that home purchase loan origination rates for black applicants—and, to a lesser degree, Hispanic applicants—appear to be significantly lower than those of other racial or ethnic groups. Similarly, the HMDA data reveal that home purchase mortgage origination rates in predominantly minority census tracts are significantly lower than those in predominantly white neighborhoods. The HMDA data also indicate a striking reliance of black borrowers on government‐backed forms of mortgage credit. The paper further reveals that...

Rental vacancy rates: A policy primer

Abstract: This article examines how policy makers use rental vacancy rates as indicators of housing market condition. The common practice of assuming that any rental market is in equilibrium when its rental vacancy rate is approximately 5 percent is criticized. Based on theoretical and empirical literature, the case is made that the rental vacancy rate that prevails when the supply and demand for rental units are in balance varies among areas and types of units and is not always 5 percent. The Department of Housing and Urban Development is faulted for not recognizing these variations and, therefore, misusing rental vacancy rates in its formula allocations for the Section 8 and HOME programs. Observed vacancy rates offer meaningful insight into rental market conditions only when they are compared with empirically derived estimates of equilibrium vacancy rates. The methods for estimating these rates, however, are still being refined, and the data needed to derive such estimates are available only for a limit...

To whom should limited housing resources be directed

Abstract: This paper examines the implications of varying housing needs for the design and targeting of housing programs and discusses policy issues raised by targeting options. Data from the American Housing Survey are used to identify housing problems in 1989 for all households and to track changes in problems between 1978 and 1989 for lower income renters and owners. Relative needs for rental assistance are evaluated for different types of households, including families with children and the elderly, and for various income groups. The paper then contrasts the housing situations of low‐ and middle‐income renters to appraise programs for first‐time home buyers. This assessment of the incidence and severity of housing problems demonstrates that the very poorest renters have by far the most pervasive and serious problems. Families with children are particularly disadvantaged. Therefore, recent changes that dilute past targeting of rental assistance at renters with “worst‐case needs” should be reexamined, an...

Discrimination in urban credit markets: What we don't know and why we don't know it

Abstract: Research on discrimination in housing credit has focused primarily on the outcomes of a complex process in which many parties play a role. The lender— or prospective lender—is only one party in the process that results in decisions by individuals and households to buy homes and finance their purchases. To focus solely on lenders would make it difficult to measure the nature and extent of discrimination and its effects on housing outcomes. After discussing limitations of housing credit discrimination research, the author suggests two relatively underexplored areas: studying housing search behavior and auditing lenders to assess their treatment of prospective borrowers before the stage at which written loan applications are submitted. Both suggested avenues of research might better address three public policy questions for which our knowledge is incomplete: Is there discrimination? Where does it occur in the home‐buying process? What are the effects of discrimination on household behavior?

Retreat from homeownership: A comparison of the generations and the states

Abstract: Homeownership is a topic of widespread policy concern, and the 1990 census provides a unique opportunity to review trends of the 1980s for subareas of the nation and subgroups of the population. This paper addresses three main questions. First, in which states did the overall level of homeownership fare best during the 1980s, and in which did the level decline most? Second, did the level of homeownership fall where house values rose most steeply? Finally, in which states did the large baby-boom generation fare best, and in which did the largest generation gap open between the baby-boom generation and the elderly? In the nation, the downward trend in ownership was slight, marking the first decline since the 1930s. Declines under age 45 were much greater—6 percentage points—while elderly persons experienced a gain in homeownership of about 5 percentage points. For young people, homeownership fell the most in states where house values also declined. © Taylor @ Francis Group, LLC 1992.

Homeownership affordability in England

Abstract: This study concerns access to and affordability of housing to buy and rent in England in 1990. It seeks to answer the following questions: How many new households can buy a suitable home, new or secondhand, or could afford a low‐cost sale or shared ownership arrangement, and how many have little option but to rent? The study tries to quantify the answers to these questions for England as a whole, for regions, and for each local authority area. Developments in the British housing market and in housing policies are briefly described, highlighting the growing importance of the issue of affordability. The methodology of the study is described, in particular the method of estimating income distributions for subnational areas. The model can also be used to simulate the impact of different assumptions and scenarios on access and affordability. The principal findings include a worsening general problem of affordability and great inequalities in access to homeownership between areas and household types.

The housing system of the former Soviet Union: Why do the soviets need housing markets?

Abstract: The administrative‐command system that had been in full force in the Soviet Union between 1927 and 1990 had its own logic and internal consistency. It is now common knowledge that this economic system has flaws that led to a deepening secular decline over the past three decades. Because of ideological reasons, and an inadequate economic understanding of the capacity of their system to be liberalized, many reformers sought a third way between central planning and markets. The consensus today is that there is no third way. Among the former Soviet republics, Russia has just embarked on market‐oriented reforms and is facing a difficult and unstable transition because central planning mechanisms have ceased to function, but markets are not yet in place. This transition is particularly problematic for housing, which is a very severely distorted economic sector. The international evidence on market economies that has accumulated over the past 20 years shows that, when housing sector distortions exist, t...

Public housing desegregation: What are the options?

Abstract: This paper examines policy and programmatic options for the desegregation of low‐income public housing. Desegregation is a strategy for relocating public housing residents or units to communities that offer a better quality of life. This paper considers the likelihood of achieving desegregation, given the factors that created segregation, by exploring the role of past and present policies and programs in producing segregation and the effects of efforts to ameliorate it. The major finding is that public housing segregation is firmly entrenched in many major cities, and attempts to reverse it have produced marginal changes. Although the federal government has ceased to play a major role in perpetuating racial segregation, it has not taken a strong, consistent, and clear stand on desegregation policy. Some innovative desegregation programs with promising outcomes are currently under way, but it is unlikely that public housing segregation will be abated in the future.

Racial/ethnic differences in utilization of section 8 existing rental vouchers and certificates

Abstract: This study examines racial and ethnic differences in the success of Section 8 Existing Housing Program enrollees in using rental vouchers and certificates. The study uses data from a sample of large urban public housing authorities (PHAs) collected by Abt Associates for the Housing Voucher Demonstration. The study finds that, excluding one site, average success rates for whites, blacks, and Hispanics are quite similar. However, minority success rates are significantly higher than nonminority success rates in some sites, and significantly lower in others. The racial and ethnic differences in success rates appear to be related to the proportion of enrollees in each program that were nonminority. Nonminority whites tend to be less successful than blacks or Hispanics in sites where most enrollees are minority, and more successful in sites where most enrollees are white. We believe this may reflect low enrollee success rates in searching for units outside the Section 8 submarket, as defined by existin...

On the use of auctions as a disposition strategy for RTC real estate assets: A policy perspective

Abstract: A sound strategy for real estate asset disposition is of paramount importance to the Resolution Trust Corporation (RTC) in its efforts to maximize costs resulting from the savings and loan bailout. A popular current approach to this problem is to employ expeditious sales structures such as auctions. Although auctions clearly speed up the disposition process, it is unclear whether they maximize net revenues. This paper analyzes the potential of auction structures to maximize sales revenue when such structures are applied to RTC commercial and residential real estate assets. Absent political constraints, we conclude that auctions are usually inferior to traditional listing and broker sales channels. For the commercial real estate sector, this conclusion is based on the prominence of information‐acquisition costs, on market thinness on the buyer side, and on continued uncertainty regarding local economic recovery. Our conclusion for the residential real estate sector is based on the degree of proper...

Federal efforts to combat discrimination in the housing and mortgage markets federal enforcement and judicial review of the fair housing amendments act of 1988

Abstract: This paper assesses the impact of the Fair Housing Amendments Act of 1988. First the shortcomings of the original 1968 law are considered, and the new amendments are described and analyzed to determine whether they answer those shortcomings. Second, the paper reviews the current Administration's implementation of the new law and the initial experience of judicial review. Implementation of the Fair Housing Amendments Act of 1988 could have been the single most successful domestic achievement of the Bush Administration. The Department of Housing and Urban Development and the Justice Department, due to the lack of adequate enforcement, resources and initiatives, have failed to provide an effective enforcement effort. Additional initiatives, including a heightened federal enforcement effort and the strengthening of state, local, and private enforcement capacity, will be required to curtail continued pervasive discrimination in housing and provide adequate relief for the victims of such discrimination.

When will residential mortgage underwriting come of age

Abstract: Residential mortgage underwriting practice has serious shortcomings, including fixation on the present rather than the future. Accept‐reject decisions reflect some unknown interaction among implicit macro projections, implicit micro projections, and implicit policy toward assuming risk, and there is no way to relate the decision process to its components. As a result, there is no satisfactory way for a lender to incorporate a particular macro‐economic outlook into its underwriting standards. Further, different mortgage designs often carry markedly different degrees of risk. Most critically, accountability for underwriting decisions is obscured. This paper proposes a fundamentally new approach to underwriting that makes full use of new technology. Under this approach, macro and micro projections of the future and the lender's policy toward risk are explicitly specified. The accept‐reject decision is automatic and transparent. Each of the parties responsible for the components of underwriting decis...

Policy directions concerning racial discrimination in U.S. housing markets

Abstract: This paper presents a catalog of 34 different proposed research and direct action policies aimed at futhering the two basic goals of public antidiscrimination policies: (1) ending unequal treatment of households in housing transactions because of their race or ethnicity, and (2) counteracting existing racial residential segregation by promoting stable racial integration. These 34 proposals have been derived from the many papers in this volume, plus a few suggestions by the author. Each proposal is evaluated against five specific criteria of desirability: potential effectiveness, government costs, private‐sector costs, ease of implementation, and political feasibility. A final overall evaluation of each is made, and all policies are divided into three priority categories: high, moderate, and low. Many recommended policies are synergistic. This whole effort should have very high overall priority in American social policy.

State policies and programs to preserve federally assisted low‐income housing

Abstract: Preservation of the existing assisted housing stock is likely to be a major housing issue throughout the 1990s and into the twenty‐first century. Federal legislation—the Emergency Low‐Income Housing Preservation Act and the Low‐Income Housing Preservation and Resident Homeownership Act—addresses the first wave of preservation needs and provides critically needed programs to maintain eligible units as assisted housing for the next 50 years. This paper presents a brief review of federal preservation requirements and argues for state participation in the implementation of preservation programs. Seven areas are identified for state action, and leading state preservation programs are reviewed. Each state needs to ensure that a foundation is established to preserve these units over their useful life as decent, affordable housing. What the states learn from participating in the implementation of the federal preservation program will help them address future preservation needs and develop the capacity to...

Turmoil among depository institutions: Implications for the U.S. real estate market

Abstract: Since the early 1980s, turmoil unlike any since the Great Depression has caused such unprecedented failures among federally insured banks and savings and loans (S & Ls) that the insurance funds for these institutions were driven into insolvency. The traditional commitment of S & Ls and the expanding commitment of banks to housing finance make it important to examine the implications of these record failures for the availability of owner‐occupied housing loans. The substantial commitment of banks and the more recent commitment of S & Ls to commercial real estate also necessitate an examination of the implications of depository failures on the commercial real estate market. This paper therefore will examine selected data from the past decade and assess the implications of the recent turmoil within the federally insured depository industry for the financing of U.S. real estate.

From central planning to market systems: Implications of economic reforms for the construction and building industries

Abstract: Housing market reforms in Eastern Europe and the former Soviet Union are having enormous impacts on the construction and building materials industries. This article describes the current structure and performance of the construction industry in Eastern Europe and the former Soviet Union, identifies key technical and institutional problems posed by housing reforms, and outlines an agenda of research and technical assistance to help construction and building materials industries in transition economies cope with the impacts of housing market reforms.

Comment on James R. Barth and R. Dan Brumbaugh, Jr.’s “Turmoil among depository institutions: Implications for the U.S. real estate market”

Abstract: In their article, James R. Barth and R. Dan Brumbaugh, Jr., “examine selected data from the past decade and assess the implications of the recent turmoil within the federally insured depository industry for the financing of U.S. real estate.” The article is similar to one written in 1991 by Andrew S. Carron and R. Dan Brumbaugh, Jr., “The Viability of the Thrift Industry,” in that both examine the lending patterns of depository institutions, with the latter focusing more on the savings and loan industry.

Dual‐indexed mortgages in reforming socialist economies: Evaluating the risks and institutional requirements

Abstract: Although housing finance systems in reforming socialist economies have attempted to increase their market orientation, the high inflation rates accompanying the reform process have introduced new distortions. Mortgage instruments designed for high‐inflation economies, such as the dual‐indexed mortgage (DIM), can reduce these distortions. However, the introduction of new financial instruments should not be undertaken lightly. Both the performance of the instruments under various macroeconomic conditions and the technical requirements for implementation must be examined carefully. Such an analysis was performed for the hypothetical introduction of a DIM in Hungary. In the Hungarian example, the risks of losses on a DIM portfolio are minimal and are considerably less than the risk faced by traditional fixed‐rate mortgages. An examination of the institutional and technical issues associated with the DIM shows that reforming socialist economies face special difficulties. In the Hungarian case, as the ...

Comment on Douglas B. Diamond, Jr., and Michael J. Lea's “The decline of special circuits in developed country housing finance”

Abstract: Deregulation of mortgage markets was an important feature in the development of financial markets in the major countries of the Organisation for Economic Cooperation and Development (OECD) in the 1980s. The paper by Diamond and Lea is a helpful effort to describe how housing finance arrangements have changed in the last ten years in the United States, the United Kingdom, France, Germany, and Denmark and to analyze how they will evolve given the liberalization in the European Community (EC) financial markets. This note concentrates first on the descriptive evidence provided by Diamond and Lea, then turns to the consequences of deregulating housing financial markets, an issue to which the authors devote relatively little attention.