The Housing Policy in the United States - Research Paper Example

 The Housing Policy of the United States INTRODUCTION In order to prepare and evaluate good policy, suggestions for enhancing the transformation of the housing sector from a subsystem of the planned economy into an important component of a market-based economy are needed. This study focuses on the public housing program of the United States and evaluates housing policies undertaken. It will show the transitions of public housing process from 1932 up to the present. The Housing Policy The Role of Housing in the Transition Process. Let me begin my review of policies with the recent developments in housing policies that directs transition process. The transition process involved here is the government policy of making home ownership a viable process to the low income Americans, whom as per records of the Federal Finance Agency have reached from 7 to 9 million homeowners who may be qualified for the program.. In order to help the low income group survive the crisis, the government launched the Affordable Home Modification Program to help about 3 to 4 million homeowners modify their present mortgages, rentals to level that could be afforded by borrowers. The impact of the subsidy and housing finance system on affordability and on effective demand for housing. Policy on housing programs, particularly the subsidy program are being reviewed by the Congress for purposes of helping low income families In order to justify policies along this line, it is important to know its impact to the low income group The housing subsidy program of the Federal Government is supposed to raise the demand for housing. It is designed to help the low income families and individuals in the United States. This policy falls under Section 8 of the U.S. Housing Act of 1937, but presently under review by the government for revisions. Under the Section 8 program of this Act, tenants and the government share in payment of the rent, 30 percent is paid by the tenant and the rest is shouldered by the government from the taxpayers’ money. According to a study done by Sinai and Waldogel (2002) this policy has raised demand for government financed units as well as subsidized housing. However, study showed there is more preference for tenant based housing rather than government financed units. (Waldfogel, Joel, & Sinai Todd January 2002) The link between effective demand and the output of the construction industry or gross capital formation Demand for housing has gone down in the United States in 2008 and 2009, as a result of the economic crisis. In a recent article, the demand was reported to decline during the period from January to September this year from 18 to 19 percent. (Malgate, 2009) This is an indication of slowed construction activities. The NAHB, in this report declared that construction of new houses was “flat” in September, and doubts the sustainability of the US housing recovery. Report stated that the number of building permits fell by 1.2% in September. It is considered to be the biggest decline in building permits during the year; and a disappointing indication for the housing industry. The special relationship between demand for finance and prices during transition In economics, demand is a function of price. Demand goes up or goes down with price movement. Demand has increased as a result of the “Tax Credit” policy. The “Tax Credit” policy of the government to new home buyers has flagged down the cost of housing in the U.S. Its effect, as reported by Malgate, has raised the number of new home buyers in 2009 by 31% mostly coming from distressed home sales. The rise in July sales, in the National Association of Realtors report, said that it was due to the impact of the tax credit. The tax credit is due to expire on November this year, and the realty business is worried on its effect to the housing industry (Malgate) The multiplier effect on macroeconomic growth, on job creation and on the State budget The current financial crisis in the United States had a multiplier effect on macro economic growth, on job creation and on the State budget. It has also produced an adverse effect to people as well as in many developing countries. The slow economic growth in US has reduced demand for other countries’ exports, lowered remittances, tightening of the credit markets that even led to a stop in external financing. The deep financial crisis in the US prompted the government to adopt fiscal policies to stop further decline of the economic growth. In 2009, the government approved $767 billion economic stimulus package to respond to the economic recession (Kimberly Amadeo, 2009). This amount that is supposed to bail out the US economy is predicted to increase the GDP in 2009 by as much as 1.4% to 3% growth by the end of 2009. However, the GDP is predicted to remain in a negative state of 3% to the rest of 2009. The stimulus package will avert further slowing of economic growth and prevent .9 to 2.4 million job losses. The analysts also noted that the economic recovery act tends to increase budget deficit of the US that has ballooned to US$11.5 trillion, and is being worked out in Congress for an increase to U$$12 trillion. The Present Housing Situation Need for housing Everybody needs a decent form of housing, but these needs and demands are affected by the economic recession prevailing in the U.S. How can consumers who have lost their jobs think of buying a house when he lost a job due to recession? Think of the staggering number of unemployed, upon which Don Miller of the Money Morning “Outlook 2009”, reports to be 1.2 million last year, with the number of unemployed continuously rising. Don Miller, in his report, said that the pool of potential buyers goes smaller while the housing market is dumped with foreclosures. Supply of housing. As earlier said, supply and demand are related to each other and are affected by economic factors. The demand for housing at this point of time is less than the supply of houses in the market. The Consumers.org reported the total U.S. housing inventory as of January 2009 to be 4.49 million units, and it would take around 10 months to sell. The sale of existing single-family homes, town houses, condos, and coops dropped to 5.3 percent as compared to 8.6 sales from last year. The implementation of the housing tax credit and the Tax Reform Act of 1986 made no significant effect to supply as it failed to provide enough incentives for private sector production of low income housing. Study of Stephen M. and Kerry V. confirmed a high rate of substitution that does not favor private housing construction. Distributional aspects and tenure situation There are several qualifications under subsidized program that depends on the state. For instance some subsidized programs take any qualified applicants on first come, first serve basis. To qualify in the program, the household income must be below a certain amount decided yearly by the head of the localities. The family must consist of two people with one child. Others eligible under this program are single, disabled and elderly He must be a citizen or a permanent resident living in the area. (Joy, Charlie) Transition to private housing ownership Present Direction and Speed of the Transition Process The transition process in the housing program of the United States is 96 years old now. The transition process has not been perfected as revisions are being introduced to respond to changes in demography and economy. Legal changes. The housing laws in the United States started in 1913 with a housing policy of making mortgage interest payment tax deductible. Subsequent housing laws expanded its coverage to serve as many people. In 1933 the National Industrial Recovery Act , slum areas were cleared for building of low cost housing Coverage was further expanded by the Housing Act of 1949. Modern housing began in 1968 with the Title VIII of the Civil Rights Act of 1968. This led to the implementation of the Fair Housing Act that Fair Housing Acts that eliminates discrimination in the right to buy or rent residential properties. It explicitly stated that the “ability of the Americans to rent or buy a home must not be based on race, color, sex, national origin, religion or familial status and discrimination against handicapped persons. (Oranka, P) Institutional changes A most important policy in housing subsidy program is under review by Congress. It is studying three important measures that will extend the tax credit period, extend higher loan funds for home mortgages and secure funding for the Housing Trust funds; and is called upon by the US Treasury Secretary Tim Geithner and HUD Secretary Saun Denovan. This calls for a review of the Tax Credit limit due to expire on December 1, 2009, providing a one year extension of the current loan limits for the Federal Housing Administration and a $1 billion funding for the Housing Trust fund. The expressed needs for the approval of these measures are needed saying that the higher loan fund limits are needed “to address market differences”, the “trust fund as a socially and economically necessary” under the present economic situation”. (Klower, W.2009) Economic changes The economic crisis leads to deeper problems in a wider scale and is expected to have a long-term effect. The report of Wendland, J. (2009) headlined the need for fundamental economic changes to respond to the US economic crisis. The report touches on hard facts of unemployment which has been reported to be 2.7 million in temporary jobs and 2.6 million in long term jobs in 2008 to 2009. The response on this was quick and done through the Recovery Act Program of 2009 but is not seen as a total reply to change the situation. It allocated budget provisions for housing expansions and improvements that are meant to help low-income earners. Organizational Issues Security of accommodation of needy households. There are general requirements that qualify a low income applicant for accommodation in subsidized housing. These are the level of income that is needed to pay his 30% share in the subsidy program. There is however instances that an applicant is turned down for a renewal of application and according to Charlie J. are non-payment of rent to previous landlords and other specific causes for losing right. Renovation mechanisms The American Recovery and Reinvestment Act of 009, better known as President Obama Package provides $11 billion to expand low-income housing programs. It has also appropriated $5 billion for the renovation of the public housing. The study of Edgar Olsen, an Economics Professor who specializes in low income housing policy, stated that it will take 54 months to build and renovate projects of the HUD program. Public housing State’s role Since 1932, the government had passed several Acts and legislations to provide housing for the low income Americans. At this year too,, the Federal Home Loan Bank system was created to provide short term credit to savings and loans. After this, in 1933 the Home Owners Loan corporation was created to refinance mortgages in distressed areas. The Housing Act of 1934 created the Federal Housing authority to insure private mortgage loans on residential property and, by thus protecting lenders against loss, encourages the use of long-term mortgages with high loan-to-value ratios.”. From this time on, several meaningful acts were legislated by the government to provide housing. Ways to provide access to those in need The HUD assists tenants search for privately subsidized housing and apply directly to their office. HUD maintains list of affordable apartments for low-income families, elderly and disabled person and assist them in their application needs. The Housing Choice Voucher Program, Section 8 helps applicants to look for their own place and use the voucher to pay for all or part of the rent. CONCLUSION The housing policy of the government is being reviewed to better respond to the housing needs of the low income families in the United States. Based on the studies reviewed, the tax credit policy has raised demand for public housing. But the Tax Credit Policy is due to expire on December 2009, and there have been no reports as to its extension. At present members of Congress are still debating on the merits of the extension. But what is certain, is that it will have an effect on the demand for housing on new home owners. The subsidized housing is found to be preferred over other housing plans as shown in a study. This policy proved to be effective in helping low income earners to cope with the economic recession. The construction and selling of new houses have been affected as a result of recession, and not as a result of pricing. Prices of houses are falling down, yet demand is slow. The tax credit incentive to contractors did not attract investors at this time. The stimulus economic package of the present administration of President Obama is made to avert further decline of the economy. The economic crisis has made the United States a large net debtor as its debt deficit has run up to trillion dollars. It is expected to rise up further as his economy has not recovered yet. It is hope that the economic package will bring in new employments in the infrastructure sector and create a multiplier effect to raise the economy. The bail out package to banks is expected to help owners renew loans and mortgages to avoid foreclosures of homes. Looking forward, the recession has not come up to an end, but analysts are hopeful that this will end by 2010, in which period economic recovery will put everything in place Works cited Charlie, Joy. Subsidized Housing Qualifications. e.how.com. Web. 15 November 2009. Consumers Reports.org. 2009. By the Numbers: U.S. housing supply rises in latest NAR numbers. Web. 16 November 2009. Kimberly, Amadeo. 2009. Economic Stimulus Package. About.com. Web. 18 November 2009. Klower, W. Financial Crisis Update. CCH Financial Crisis Center News Center.16 Nov. 2009. Malpede, Michael J. 2009. US Housing Recovery may be slowing. FxStreet.com. Web. 16 Nov. 2009. Malpezzi, S. and Vandell, K. 2002. Does the low-income housing tax credit increase the supply of housing? Web. 16 Nov. 2009. Miller, Don. Outlook 2007. Money Morning, Market Oracle. Web. 16 November 2009. Oramka P. Government Housing laws. Ehow.com. Web 16 November 2009 Waldfogel, J & Sinai, Todd. 2002. Do Low-Income Housing Subsidies Increase Housing Consumption? The National Bureau of Economic Research. Web. 16 November Wedland, Joel, 2009, U.S. Economic Crisis: Fundamental Changes Needed. Web. 16 November 2009 Read More