Remarks of Secretary Shaun Donovan at the Center for American Progress
Friday, February 28, 2014
As prepared for delivery
Thank you very much, Neera (Tanden), for that kind introduction and for all your outstanding leadership over the years.
I’d also like to thank Julia Gordon for her tremendous efforts to advocate for and advance issues critical to our housing market and nation.
Finally, I want to thank the entire team at the Center for American Progress for the incredible contributions you have made.
Your efforts are not only shaping debates, they’re also making a profound difference on the ground and in people’s lives. I deeply value your work and appreciate this chance to be with you today.
The Opportunity Gap
In December, my boss, President Obama, joined CAP to discuss what he called the defining challenge of our time: the widening opportunity gap. He spoke about the decades-long trends that have resulted in those at the top doing better and better, while the middle class is squeezed.
He described the growing disparity between productivity and pay. He talked about the ceilings that are stifling upward mobility and trapping our children in poverty.
And in the face of these challenges, our nation has a simple choice to make: do we allow our country to continue down this path, let inequality deepen and watch opportunity become increasingly scarce?
Or do we meet this challenge with bold action that ensures future generations can grow up in an America where hard work pays off?
The answer is clear: we must take action. That’s why the President has outlined an opportunity agenda that includes raising the minimum wage, giving workers new skills to succeed and
making high-quality early education available to all children.
In short – he is fighting to restore the basic promise that anybody, regardless of their background, can make it if they try. Today, I want to talk about a critical component in this work: giving people, of all income levels, access to quality housing.
Specifically, I want to focus my remarks on steps we must take, as part of broader housing finance reform, to bolster the multifamily sector and spur more affordable rental options for families.
The Importance of Affordable Rental Housing
At the outset, it is important to acknowledge that this is a subject that doesn’t get its fair share of attention. Most of the time, the housing debate focuses on homeownership – and understandably so.
Homeownership has long been considered a part of the American Dream. It’s been a path to the middle class and helped families put down roots in a community. And a healthy housing finance system should give those who want to buy, and are ready, the chance to do so.
That’s why, last August, President Obama unveiled his plan for a new housing system that
• ends the failed Fannie and Freddie model;
• puts private capital front and center; and
• ensures access to safe, quality products like the 30-year fixed mortgage.
These measures will go a long way in ensuring broad access to credit for responsible families who want to purchase a home and minimizing risk to prevent a crisis, like we just endured, from ever happening again.
But, we must also recognize that homeownership isn’t for everybody. Not everyone can buy.
Not everyone wants to buy. And that’s okay.
In fact, it’s time to remove the stigma that some place on rental housing, as if it’s some alternative lifestyle. Instead, rental housing should be viewed for what it really is: another pathway for people to achieve their dreams.
It gives struggling parents the chance to raise a family in a community of their choosing. It gives young adults the chance to get the best possible start in their careers and lives.
It gives veterans returning from overseas the chance to get settled back home. It gives seniors the chance to live with comfort and dignity.
In short, affordable rental housing is about giving families, at all stages in life, a chance to thrive.
The Rental Crisis We Face
Unfortunately, in recent years, it’s been getting increasingly difficult for Americans to secure this opportunity.
The housing collapse led to more people renting. Demand is soaring and prices are climbing.
On top of that, as our nation continues to fight its way back from the economic crisis, many people are still looking for work. And for those who have jobs – wages are too often stagnant.
Taken together, these trends have created the worst rental affordability crisis that this country has ever known.
According to the Joint Center for Housing Studies, in 2012, roughly half of all renters paid at least 30 cents of every dollar they earned on housing. We are talking about 21 million households, the greatest number of housing cost burdened renters on record.
The need for affordable rental housing is real and growing, and we must act boldly to meet this challenge.
Supporting the Multifamily Sector
For us at HUD, this work starts at home and we have worked tirelessly to support the multifamily sector.
During the crisis, the Federal Housing Administration stepped in when private capital left the market to keep important projects going and workers on the job.
We had of surge of activity in our multifamily office over the past five years, jumping from roughly $2 billion in originations in 2008 to nearly $18 billion last year.
Looking to the future, even as the market normalizes, deals are becoming increasingly complex.
So we are reforming our operations to improve processing times because we recognize that delays at FHA result in delays on the ground. I can tell you of preservation deals that used to take six months now taking six weeks – helping keep low-income families in their homes.
And in addition to increasing our efficiency, we are also expanding our reach to help those traditionally overlooked by the market – properties with 5 to 49 units, for example. These developments are traditionally more affordable – but also tend to be more in distress because their mom and pop owners have a hard time securing the required capital.
So FHA has launched a small multifamily buildings initiative that opens new financing opportunities with mission-driven lenders. This effort allows them to accelerate their investments into small buildings by lowering their cost of capital and sharing the risk of those investments.
This will preserve sorely needed affordable housing. And we urge Congress to give FHA additional flexibilities so we can be even more nimble and effective for both industry and the people we serve.
But of course, FHA has its limits and was designed to focus on those traditionally overlooked by the market.
To address the overall market—and meet the growing housing needs of American families—we’ve got to ensure that robust support of the multifamily sector is at the heart of any housing finance reform legislation.
Principles of Reform
This work is important to me. And it’s important to President Obama and his opportunity agenda. During his housing speech last August, he stressed the need for government to help ensure a deep and liquid financing market to develop and rehabilitate multifamily housing.
To make this happen, we support a private housing system that provides private capital for rental housing with a government guarantee. While the GSE model has worked well in multifamily, we don’t want a government monopoly dominated by two entities in conservatorship.
Instead, we want a competitive model, which will spur innovation and better serve the needs of the marketplace. To ensure competition, the new system should encourage new entrants by allowing for a government backstop that is properly priced similar to FDIC insurance.
Doing so will make available a wider variety of services and attract new ideas, strengthening the market as a whole. But this alone isn’t enough.
In addition, to attracting more capital, we’ve also got to look at how it is used. Specifically, the new system should encourage the use of capital to meet a wide-range of housing needs.
It’s no secret that financing is more likely to fund hot projects in the middle of town than in underserved communities. And of course, there is nothing wrong with developing luxury buildings.
In fact, as a native New Yorker, I appreciate how this kind of development strengthens our economy. However, we must also recognize that development in distressed areas also strengthens our economy.
That’s why the new system must create a level playing field to ensure that all qualified participants—regardless of geography, wealth or other factors—can receive financing.
When distressed communities win, our entire nation wins. That’s why housing finance reform must achieve broad access to opportunity.
To ensure financing is available for affordable multi-family housing projects, we have proposed that in order for an entity to access a government guarantee, they must meet defined affordability standards, specifically that a significant share of their new multi-family loans purchased for securitization be affordable to households at a lower income levels.
This work compliments our push to dedicate at least $5 billion a year for affordable housing to be distributed through housing funds. Resources will come from an increase in basis points on each dollar of mortgages backing securities that either directly or indirectly benefit from a government guarantee.
These housing funds will be used explicitly for the production of affordable housing and a range of other goals designed to expand opportunity.
In total, by expanding financing resources with a new infusion of private capital, by ensuring this capital is available for a wide-range of projects, and, with the housing funds, by dedicating billions of dollars for affordable housing and other needs: we can give more families the opportunity to better their lives.
And with housing finance reform legislation currently being crafted on the Hill, it’s critical that we make our voices heard.
Conclusion: Time to Get Reform Done
Of course, there are some who wonder if reform will ever get done. And that’s understandable considering all that’s happened—or should I say, hasn’t happened—here in Washington in recent years.
But I am optimistic for a number of reasons. One, we’re beginning to see bipartisan cooperation in areas ranging from the budget to the raising of the debt-ceiling.
Two, housing has always been an area of common ground. President Truman and Senator Taft worked together on the Housing Act of 1949. Ed Brooke and Walter Mondale worked together to produce landmark housing legislation decades later.
And earlier this month, Senators Johnson and Crapo came out with a joint statement declaring that they are actively working on the strongest bipartisan bill possible. So we are seeing a lot of positive momentum.
We can expect to see this momentum build over the next two months. And as long as the debate remains focused on people, I truly believe reform can happen.
That’s where all of us come in. As CAP well knows, progress doesn’t just happen by itself.
We’ve got to push for it. We’ve got to push for reform. We’ve got to push for stronger support of the multifamily sector.
We’ve got to push to create more rental housing, at all income levels. We’ve got to push for resources for the housing funds to support development that meets the needs of low and moderate income families in underserved markets.
In short, we’ve got to push to give every family a fair chance to lift themselves up and better lives. As I said earlier, closing this opportunity gap is the defining challenge of our time.
Increasing access to quality affordable housing helps bridge this gap. It’s up to all of us to meet this challenge. Let’s do it together.