HOPE in the Affordable Housing Crisis

The benefits of homeownership are vast—and are far more encompassing than having more closet space and a backyard to let the dog out. Homeownership is about owning property and land, and in the U.S., these two have provided an incredible opportunity to build wealth. The equity a family can build by investing in a home can pay it forward to their descendants for generations to come.

That’s why the affordable housing crisis in the United States is as dire as it is. According to Freddie Mac, there will be a gap, or undersupply, of 4.35 million homes by 2022, and every year the gap widens by 370,000 homes.

Roughly 1.2 million homes in this gap are for low-to-moderate income families, and another 2.6 million are for those who are most economically disadvantaged—who earn 50% or less than what their neighbors do.

And setting the “supply” problem aside, there’s a whole host of “demand” problems—namely, ensuring people have access to affordable and responsibly underwritten mortgage loans, so they can move into these houses in the first place.

To unpack this problem, Pete Carroll, Executive, Public Policy, moderated a webinar with Frank Martell, CEO, Dr. Frank Nothaft, Chief Economist, and John Hope Bryant, chairman and CEO of Operation HOPE.

“Too Much Money Chasing Too Few Homes”

The affordable housing crisis is the convergence of two major challenges: supply and demand. “And right now,” said Martell, “those are completely out of balance.”

With an onslaught of investors, millennial first-time buyers and others trying to find their dream home, demand has never been higher. Simultaneously, the available inventory in the market today—or number of homes available for sale—is very low.

Today, that’s resulted in homes selling far over asking—all within a matter of days of the listing being posted. This lack of supply and demand balance has caused prices to skyrocket.

“In the CoreLogic HPI and Case-Shiller Index, […] prices are up 17% over the last 12 months,” said Dr. Nothaft. “That means, if you’re a first-time homebuyer, trying to contemplate or get prepared or take that first step to become a homeowner, the nest egg you need basically has to be 17% bigger this year than it was one year ago. And you need the bigger nest egg to meet the down payment, closing cost, and to have some cash in reserves after the settlement.”

But the problem regarding the lack of housing isn’t new, nor will the eventual end of the pandemic resolve it. The total 4.35 million undersupply has been growing for years.

“That’s one heck of a big gap. A gap of that size would take 5 to 10 years, if we started now in earnest, to close,” said Martell.

The Value of Homeownership

Homeownership creates the conditions for intergenerational wealth creation—and subsequently, that makes it an opportunity that should not be passed up.

There are three things that have never reversed in American history: GDP growth, stock market growth and real estate values. While they may dip, they always come back up.

In fact, the history of homes—and by proxy, land—resulting in economic prosperity is long. When English people came to America, poorer white families were given 50 acres each. By the time slavery ended in 1865, Black families were given 40 acres each along the coast—but there was only enough land for 18,000 families of the four million enslaved persons. For the lucky few who did receive the initial land grant, the majority later had their land confiscated and returned to the original owners, dispossessing tens of thousands of Black landowners.

That delay in land ownership—and for a much fewer number of people—resulted in vast economic disparity. “That’s why you have a Black net worth that’s less than 10% of its white counterparts,” said Bryant. “You have Blacks, poorer whites, Native Americans who really missed out on the great land rush in this country in building wealth.”

Operation HOPE, a financial literacy nonprofit, today seeks to promote financial literacy and economic prosperity across the country. “Our goal is to create an economic infrastructure for all people: 50% of the economic strata and below. We think there’s 2-3% of locked GDP. We need to unlock it, prepare and coach up—we’re like the Starbucks of financial inclusion—coach these people up, get them into the economic system so that they can contribute. And get them out of the surviving class back into the thriving class and hopefully into the building class so that we can restore the hope for America,” said Bryant.

Today, they are the only nonprofit allowed to operate inside a bank branch in U.S. history, and they work directly with people to grow credit scores 54 points in 6 months or 120 points in 24 months.  

With better financial literacy, they can empower people to make that step towards homeownership and grow wealth.

“We have 200 offices across the country, some of them supported, by the way, indirectly by CoreLogic. We’re basically a private banker for the working class. A lot of these are in rural white neighborhoods, by the way,” said Bryant. “The color isn’t Black or white for us—it’s green.”

There’s Hope

Part of solving the affordable housing crisis in the U.S. is filling that supply gap by building homes. But there are other, creative ways to solve the crisis as well.

There are lots of cities near job centers with vacant lots and underutilized real estate. “It just needs to be reimagined,” said Bryant. By creating opportunity for people to rehabilitate existing lots, we can bring housing back into the system.

Additionally, there are plenty of rent-to-own programs. And with the Community Reinvestment Act, lower income people can access lower cost debt. “Don’t feel like the train has left the station permanently,” said Bryant.

“We need to think bigger than we’ve thought,” said Martell. “When you talk about the American Dream, every dream that every family has in this country…the root of so much of that is in a home. People need a home. It doesn’t matter who you are, what ethnicity you are, where you come from. If you don’t have a home…life is pretty tough.”

©2021 CoreLogic, Inc., All rights reserved.

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