Don’t Waste the Crisis. Use Pandemic Relief to turn Working Class Renters into Homeowners
The number of challenges awaiting Joe Biden when he moved into the Oval Office are nearly innumerable, but among the most daunting is the impending tidal wave of evictions that could wash the more than 12,000,000 American families who are more than $5,000 behind on their rent out of their apartments and into what have become incredibly mean streets.
To his credit, the new president made the impending catastrophe a priority on his first day in office by signing an Executive Order extending the CDC’s eviction ban until March 31. But while laudable, the EO does little more than buy time for renters and landlords who are being crushed by the economic fallout of the ongoing COVID-19 pandemic. There is little reason to believe conditions will have improved significantly in 63 days when the moratorium ends and scant hope that the $25 billion in rental assistance included in the last stimulus package will stabilize the rental market.
All of which begs the question: what do we do next? I believe we should heed the advice of Sir Winston Churchill, who once said “Never let a good crisis go to waste!” by using the next stimulus package to provide down payment assistance and government backed mortgages to low-income families who have been shut out of the housing market for far too long. This one, innovative program would turn the nightmarish pandemic into the vehicle that makes the dream of homeownership come true for millions of Americans.
Here is why that is important. According to a recent story in the New York Times, low-income renters who want to become homeowners find it difficult to secure financing for houses valued under $75,000 because loans at that level don’t generate enough profits for lenders. That explains why mortgages of $100,000 or less accounted for just 10 percent of single-family home loans in the U.S. last year. It also explains why self-financing speculators are able to scoop up homes in that price range and convert them into rental properties.
Fortunately, as the Times article documents, low-dollar, low cost loan programs like the one I’m proposing work — when and where they exist. For example, Christopher Smith and his wife Gloria were able to buy a home in Shawnee, KY for $86,000 because a local credit union had begun offering small-dollar mortgages. “There’s nothing like owning your own home,” Mr. Smith said. “If I want to paint it, I can.”
The Smith’s success story can be repeated in communities across the United States, including Cleveland. I performed a Zillow search this week and found that there are 634 homes valued at $75,000 or less for sale in the city. But the lack of low-dollar financing means most of them will be bought by speculators who will charge a tenant double in rent over what the tenant would pay for a mortgage — if they could get one.
Consider this, the principal and interest cost on a 30-year mortgage at current interest rates would be $324 per month. Even if another $200 per month for taxes and insurance is added in the cost of buying would still be less than the cost of rent.
But lower housing costs are just one benefit of the program I’ve outlined. We all know that homeowners invest more in their properties than landlords and that increased homeownership creates stronger, safer neighborhoods. And, on a macro level, enabling more people to purchase a home can have a major impact on reducing the wealth gap that plays a major role in dividing our nation.
We should seize the opportunity to extend the dream of homeownership to thousands of our neighbors here in Cleveland and millions of families across the United States. HUD Secretary Marcia Fudge and Sen. Sherrod Brown are in a position to make that dream come true. I urge them not to waste this crisis.