BAM Key Details:
- NAR has released highlights from the REALTORS® Legislative Meetings, with quotes from Doug Holtz-Eakin and Dana Peterson discussing the debt limit, the long-term cost of social programs, and the impact of institutional investors.
On Sunday morning, May 7th, 2023, the REALTORS® Legislative Meetings opened with a deep dive on the debt ceiling—a hot topic in Washington that could significantly impact the economy and housing market.
Two of the top U.S. economists shared their views on the national debt, the current economy, banking, social programs, institutional investors, and the impact of all these on housing affordability:
- Doug Holtz-Eakin, former director of the Congressional Budget Office
- Dana Peterson, chief economist of The Conference Board
Politics and raising the debt ceiling
During the “Federal Legislative and Political Forum: How Banking and Institutional Investors are Influencing the American Dream of Homeownership,” both Peterson and Holtz-Eakin discussed raising the national debt ceiling—not as a suggestion but as something that needs to happen.
Peterson argued that the national debt is “unsustainable and projected to rise to more than the size of the economy.” She also expressed her fear that we’ll go over the edge. Because if we breach the debt limit, “everything shuts down.”
That (shutdown) cuts 6 percentage points from GDP, ensuring an immediate recession. The cost of borrowing would go up for all your customers….My concern is also about consumer confidence. When consumers don’t feel good about what’s going on in government, they’re not likely to spend. We at the Conference Board are forecasting a mild but short recession.
While acknowledging the need to raise the debt ceiling, Holtz-Eakin speculated as to what Washington will do and how politics could interfere with taking timely corrective action.
There is no right way to raise the debt limit—we have to do it, but getting it done is just a matter of politics. They’re going to run up to June 1, and we’re going to see financial markets react. They won’t know what deal they want, so they will punt and do a short-term extension until September 30 – so we’ll get two rounds of this.
He then went into how government stimulus programs have exacerbated the problem, as well as his concern that political differences will stall any significant progress.
The budget process, it’s broken. We spent $5 trillion in stimulus because of the pandemic that bounced the debt up. It is something we need to come to terms with. I am concerned we don’t have the politics to slow the (debt) number.
Whether the decision-makers can agree on how to address national budget and debt issues, it’s plain enough that the “fingers-crossed” approach is not a strategy.
The impact of social programs
Both Holtz-Eakin and Peterson addressed the role of social programs in the rapid increase in national debt.
The 2024 election will be a teachable moment. Medicare is going to run out in 5 years, and social security in 10 years. It is essential to fix these large and important pieces of our social safety net.
There needs to be a national conversation about debt. It needs to extend beyond just a decade. We can’t solve it within a decade without draconian measures. We need to look at it as a 20- to 30-year initiative and ensure we are caring for our elders but at the same time making sure we are not spending on excesses.
No politician wants “draconian measures” to be part of their legacy; most prefer to be remembered as short-term rainmakers, as long as they can point a finger at someone else for the long-term consequences.
Regardless of the political fallout, leadership is needed to steer the ship in the right direction, even if it means making everyone on board seasick.
The impact of institutional investors
The conversation then turned to institutional investors and the threat they pose to home buyers across the U.S., many of whom are unable to compete with investors for available and affordable listings.
I think it is a tremendous threat. More than 70 million millennials turning 40 want to buy a home and can’t. Investors are targeting communities of color and preventing the people within them from having a pathway to generational wealth. If we don’t fix the affordable housing issue, it threatens people’s ability to achieve the American Dream of homeownership.
The Fed launched higher rates at a time when there is record low inventory; there isn’t a level playing field in competing with these investors right now. We need to focus during the next decade on getting greater housing supply, period.
Holtz-Eakin did acknowledge that this issue is more pressing in some local markets and is not prevalent everywhere.
Homeownership and its benefits for the economy
Both economists shared their thoughts on the bigger picture of homeownership and how it impacts the larger economy as well as a homeowner’s local community.
Housing is roughly 5-6% of GDP, but then if you add all the things that people put into a house or around a house and the taxes they pay, all those things contribute to the economy and their communities. Those are the things you should focus on.
Homeowners take pride in their homes; they invest in home improvement projects, landscaping, and outdoor renovation projects. In some communities, they participate in neighborhood watch programs for the benefit of all those living there.
Renters might make some (temporary) home improvements, but there’s little incentive to invest in more expensive repairs and updates. And if the landlord isn’t willing or able to invest in those, either, the property’s value goes downhill and impacts the values of those around them.
For you to make good policy, you need good politics. It is in [policymakers’] political interest for [more people] to have better access to the American Dream.
It’s time the government put more resources toward helping more people become homeowners by addressing the biggest obstacles. Low inventory, for a prime example, is something leaders can address by incentivizing the increased construction of new and affordable homes.
As long as renting is more affordable for low- and middle-income earners, they will remain at a financial disadvantage compared to those able to afford the higher costs of buying and maintaining a home.
The real issue is not the rich who are getting richer; it’s the people with the power to make affordable housing more accessible who choose instead, with the policies they make or promote, to encourage renting instead.
Top takeaways for real estate agents
As top economists Holtz-Eakin and Peterson both make clear, there’s more than one reason Americans who would become homeowners if they could—especially Millennials and Gen Z—are forced to wait on the sidelines.
Policies that encourage renting and do nothing to make affordable housing more accessible, while driving up our national debt (kicking the can down the road), are a big part of the problem—as are institutional investors buying up affordable homes to rent them out to people who might otherwise have bought them.
Do what you can to advocate for would-be buyers in your community and to make it easier for them to become homeowners. Explore the resources available to low- and middle-income earners to help them cross that threshold and start building generational wealth.
In doing so, you’ll benefit them, their neighborhoods, and the larger economy.