MBA Risk Conference: An elephant in the room

As the MBA panelists concluded, after an hour of dissecting our country’s housing issues, the distinguished speakers had left the number one issue untouched. Hadn’t laid a glove on it. They’d rope-a-doped our housing troubles, taunting regulations at state and federal levels, high costs, building restrictions. Ed Pinto attacked with rights.

David Dworkin with left hooks. But they had never taken a swing at a system that permits 20 million housing units to be purchased by investors. Are we such capitalists that we can’t talk about regulating who buys our housing stock?

Pinto came closest to it when he said maybe the GSEs shouldn’t be involved with investor loans, second homes, or god forbid, refinances. I thought Bob Broeksmit, the MBA chief, was going to have a coronary. The room let out a collective, wait, what? The remark was laughed off with a “we are just kidding” non-chalance.

But Redfin recently published stats that 1 in 6 homes are bought by investors. Half by Wall Street and half by mom-and-pop landlords. It’s even worse for our less expensive homes (under $300K?) where investors buy 1 in 4 homes. That’s between 600,000 and 1,000,000 of the country’s roughly 4 million homes that change hands in any year.

In the panel on Monday, Pinto’s proposal was to remove the tax-deductible status on second homes to free up 700,000 units over, I think he said, ten years. (I’m checking my notes). That is one heck of a weak fix for our being currently short 3 million housing units.

The panel actually debated the relative merits of selling off large chunks of federal lands to builders (again Pinto’s idea – at least he’s slinging some), stating that the Federal Government owns 72% of Utah. So let’s erect housing in the Utah desert? If you are telling me that the future of American Housing is in Panguitch, Utah, I’m gonna ask you to rethink that.

But at this MBA Risk conference just concluded, this is a serious panel, consisting of some experienced and informed minds. Ted Tozer was head of both Ginnie Mae and VA, Ed Pinto longtime pundit connected to the American Enterprise institute and David Dworkin who has served in both R and D administrations and as head of the National Housing Conference. Smart guys all. The panel was moderated by MBA chief Bob Broeksmit, who admirably lobbed the softballs for these guys to hit. What does the election mean for housing? What if Kamala. What if Trump. Conservatorship. Housing regulations.  

My frustration is this - there’s a housing shortage and this super smart group of panelists didn’t discuss the investors who take this house and that house plus the one you were going to buy. And it’s all done with cash or low rates and tax incentives and you can’t compete. I’ve talked to more than one millennial who feels like a hungry dog under the picnic table, waiting for a dropped chicken leg, but knowing the picnic wasn’t thrown for them.

The following may be terrible ideas (at least one is), but they are a start.

1. We adjust tax policy to make being a landlord much less attractive. Yep, that means attacking depreciation and interest write-offs. Our system rewards sopping up housing inventory through investor activity. Canada tackled the problem by passing tax penalties on investors and prohibiting foreign investors from purchasing residential properties for all of 2023 and 2024. In the US, investors accounted for 22-24% of single-family home purchases from 2021 through the second quarter of this year. Let’s cease encouraging that, please.

2. Can’t we ask why we have institutional investors like Invitation Homes, American Homes 4 Rent, Home Partners of America gobbling up inventory? Do you say, “well, that’s capitalism!” and “too bad!” Well, since we fiddle with the tax code to create incentives, let’s put some tax provisions in place for these corporate behemoths to put this inventory back on the market. (This may be a terrible idea - pause a second and give thought to the unintended consequences of a collapse in market values when investors suddenly dump inventory. Yeah, we need to think this through. But can’t we at least talk about it?)

3. Airbnb and VRBO homes were often purchased with misrepresented occupancy. I know because I've investigated tons of them. The borrowers took the low-down loans, and then immediately posted their rental online. If only there were a Bureau interested in Consumers that needed Financial Protection, they could crack down on occupancy fraud. Call some loans. Get some properties back on the market.

4. A NAR report called “International Transactions in U.S. Residential Real Estate” found that in 2024, there are more than 54,000 foreign purchases and that 50% paid all cash and 45% of foreign buyers purchased the property NOT as a primary residence. Can we just house our people first?

Conclusion:

After the collapse of 2008, a direct result of unfettered lending excesses, we rubbed our chins and we instituted the ability-to-repay rule (“ATR). The rule was “unless you can pay us back, we can’t lend you the money.” It was a lightbulb moment for some of us, while the public said, “wait, that’s a new rule?” Here we are in 2024 and again encountering unfettered capitalism, sopping up inventory, driving up prices, and NOT by owner-occupants. Can we at least talk about solutions?.