While most housing indicators are down year-over-year, housing stands poised to lead an economic recovery provided businesses can reopen as the virus slows its growth and lawmakers put the right policies in place. As the housing sector enters this recession underbuilt, it is an industry with both pent-up housing demand and sensitivity to low interest rates, which places it in a good position to recover more quickly than other sectors of the economy. Policymakers can foster these improvements with support for housing and homeownership.
Positive momentum for housing data is key for a rebound. Housing’s share of GDP is currently 15 percent, but the operation and construction of single-family homes, multifamily buildings, and remodeling have an outsized impact on the economy. For example, recent research from the National Association of Home Builders (NAHB) shows that the construction of 1,000 single-family homes creates 2,900 full-time jobs and generates $111 million in taxes and fees for all levels of government to support police, firefighters and schools. And historically, housing has led the economy out of downturns, with the major exception being the Great Recession itself. With the nation facing a shortfall of about 1 million homes, there is pent-up demand for home building.
Moreover, the importance of home has never been as obvious as it is now during the time of the novel coronavirus. Home is much more than a place to spend the night. For many, it’s also a workplace, a school, a playground and more. During the coronavirus pandemic, home has been our refuge. The pandemic did not slow housing demand or ease the nation’s severe housing affordability problem. We still need to produce homes that are affordable to families across the economic spectrum.
But for this economic engine to operate, credit must flow to home buyers, as well as builders and developers. A lesson of the aftermath of the Great Recession was a sluggish rebound for single-family construction due to tight lending conditions for builders. Unfortunately, during the first quarter of 2020, NAHB survey data found lending for acquisition, development and construction (AD&C) loans declined to conditions comparable to 2011. By placing an emphasis on lending for building and land development, policymakers can help a housing-led rebound.
Additionally, supply-chain disruptions, made worse by tariffs, threaten the availability and cost associated with building materials. Construction projects cannot be completed if materials are not available, and they cannot begin if costs price out potential new home buyers due to housing affordability constraints. Ensuring the material supply-chain operates efficiently and reducing tariffs will help builders to meet growing housing demand.
As was true before the recession, increasing labor productivity in the home building and remodeling sector will be required in order to “build more with less” and help bend the cost curve to offset the rising burden of development and regulatory burdens. Congress can help in this effort by promoting job training programs to prepare individuals for careers in home building.
As America seeks a return to normal, federal policymakers can do their part to help the housing industry be an engine of job and economic growth by strengthening the Low-Income Housing Tax Credit (LIHTC). The need for affordable rental options remains acute. More than one in four renters spends more than half of their monthly income on rent. Establishing a minimum 4 percent credit floor would provide more predictability and flexibility in financing projects, making more types of properties financially feasible and significantly increasing unit production. This credit rate floats, and the current low interest rate environment stemming from COVID fiscal policies to stabilize the economy has resulted in nearly 25 percent less equity available for much-needed development.
Reducing excessive regulations that harm small businesses and are contributing to the housing affordability crisis can help ensure a healthy housing market and boost the economic recovery. On average, regulations imposed by government at all levels account for nearly 25 percent of the price of a single-family home and more than 30 percent of the cost of a typical multifamily development.
Providing rental assistance to struggling families during the coronavirus-caused economic downturn and aid to multifamily property owners who are not receiving rental payments but remain financially obligated to pay their mortgage will help renters and landlords directly impacted by the outbreak.
Given the outsized role that housing plays in the economy, it is imperative that Congress supports policies that will increase the production of quality, affordable housing to meet market demand and keep the economy strong.
Dean Mon is the chairman of the National Association of Home Builders.