[T]he government, through burdensome zoning laws and regulations is preventing construction companies from providing more entry-level homes. Although builders are able to absorb some of the regulation costs when selling luxury homes with wider profit margins, they can’t do it with tighter margins in lower end homes. Again, those most adversely affected by such policies are lower-income and increasingly minority, first-time home buyers.
Despite these obstacles, supported by an improving job market and increasing leverage, first-time buyers have been flocking into the market, even as home prices continue to boom. They now account for 52 percent of all buyers. (The AEI First-time Buyer Mortgage Share Index is based on a near-census of loans guaranteed by federal agencies.) But as more entry-level buyers chase a limited supply of homes, entry-level prices have been rising rapidly. Over the last year alone, the median home price for first-time buyers rose 8.5 percent, compared with just 2.5 percent for repeat buyers. The only way that first-time buyers can survive in this environment is by taking on even more debt. This echo of the previous housing crash is again evident in today’s market.
So what should be done to break this vicious cycle? Repealing zoning laws and regulations will take time and run into fierce opposition from NIMBY communities and industry groups such as the National Association of Realtors, who all benefit from higher prices. A more immediate solution exists in the form of the Wealth Building Home Loan, which offers an alternative for first-time buyers. Instead of the standard 30-year fixed rate mortgage, the WBHL is based on a 15- or 20-year amortization schedule. This enables borrowers to build a larger buffer against default through faster equity accumulation without sacrificing any buying power relative to a 30-year FHA loan. The Wealth Building Home Loan also requires little or no down payment. A growing number of banks are offering the loan, and government support for the loan would speed its market penetration.
When connecting the dots, current housing policies amount to nothing less than a government-sponsored wealth transfer from the poor to the rich.