Mark Calabria, Former head of the Federal Housing Finance Agency, discusses preventing a mortgage meltdown during the pandemic. Also, railroads' excessive profits and the limitations of zoning reform for housing inflation are explored.
Zoning reform alone may not solve the housing crisis as cities have life cycle patterns of growth and housing affordability requires a multifaceted approach.
During the pandemic, forbearance programs provided temporary relief for homeowners, highlighting the need for timely assistance programs that protect the financial system and taxpayers.
Deep dives
The Declining Elasticity of Housing Supply in Houston
The paper explores the declining elasticity of housing supply in the Houston metro area, even in the absence of zoning restrictions. From 1980 to 1994, a 10% increase in housing prices led to a 3.2% increase in supply. However, from 2000 to 2016, that elasticity declined to only a 1.5% increase in supply for the same price increase. This challenges the notion that zoning reform alone will solve housing affordability issues. The paper suggests that cities have a life cycle pattern of growth where development starts at the edge and gradually moves to infill. This pattern can lead to diminishing returns as new nodes need to be created further out from existing agglomerations. While zoning reform is helpful, it is not sufficient to address the housing crisis.
The Impact of Forbearance Programs During the COVID-19 Pandemic
During the pandemic, forbearance programs were implemented to provide temporary relief for homeowners facing economic hardship. These programs allowed homeowners to pause their mortgage payments without penalties. When homeowners refinanced or sold their homes, the missed payments were added to the end of the mortgage. The goal was to provide a bridge for homeowners until they could resume making payments or find new employment. The paper emphasizes the importance of creating a system that does not penalize work and discourages high marginal tax rates. It also highlights the need for timely assistance programs that protect the financial system and taxpayers.
Zoning Reform as a Tool for Housing Affordability
Zoning reform has become a popular solution for addressing housing affordability issues. However, the paper cautions against viewing it as a one-size-fits-all solution. The authors argue that while zoning reform is necessary, it may not be sufficient to reverse the rising cost of housing. They present a case study comparing cities in California and Texas. Despite Texas being known for its lenient zoning regulations, the supply elasticity of housing in Houston has decreased over time. The paper suggests that cities have life cycle patterns of growth, and housing affordability requires a multifaceted approach beyond zoning reform.
Tempering Expectations on the Impact of Zoning Reform
While zoning reform is an important tool for addressing housing affordability, it is important to temper expectations regarding its impact. The paper highlights that zoning reform alone may not be enough to solve the housing crisis. It cites examples like the limited impact of zoning reform in Minneapolis, where only 25 permits were issued after the reform. The paper suggests that other factors, such as the availability of infrastructure and the life cycle patterns of cities, play a significant role in housing affordability. It concludes that zoning reform should be pursued along with other complementary strategies to address the complex issue of affordable housing.
In this episode of the Unintended Consequences podcast, we start by investigating whether railroads are making excessive profits by cutting back labor expenses. That’s the subject of Peter’s new paper, which is particularly timely given the reaction to the train derailment in eastern Ohio. Then, Mark Calabria joins to discuss his cover article about his time as the head of the Federal Housing Finance Agency and the steps he took to prevent a mortgage meltdown during the pandemic. Finally, Peter and Paul tackle the limits of zoning reform as a solution for runaway housing inflation.
