We Need Both Supply and Demand Strategies to Address Fair Housing

By, Nikitra Bailey, www.AmericanBanker.com

In the United States, where you live matters and affects every facet of your life, including a child's ability to attend a well-equipped, high-performing school; breathe clean air; drink unpolluted water; receive quality health care; avoid food deserts; access quality credit; and so much more. Now that the nation's fair and affordable housing crisis is receiving the attention it deserves, let us not forget the ways housing discrimination distorts the market, and how lenders and policymakers can advance equitable homeownership opportunities.

We have lost trillions of dollars in economic growth due to systemic racial inequality. One study estimates that homes in majority-Black neighborhoods are valued between 21% and 23% of what their valuations would be in non-Black neighborhoods, leading to $162 billion in cumulative losses in 113 metro areas throughout the U.S. Other studies show that improving access to housing credit could have resulted in an additional 770,000 Black homeowners, generated billions in local tax revenues and created thousands of jobs. These studies demonstrate the need for a national, comprehensive demand and supply strategy to address the nation's skyrocketing housing costs and their continued role in driving inflation so everyday people can obtain the fair housing opportunities they deserve.

Fortunately, there are innovative solutions that would create opportunities for communities of color as well as consumers in underserved, rural neighborhoods, and ultimately grow the economy for everyone. This is where lenders and policymakers can play a critical role.

First-generation down payment assistance, or DPA, for homebuyers could create 5 million new homebuyers and has been adopted in a number of states, including Maine, Massachusetts, Minnesota, North Carolina, New Jersey and Vermont. Typically, consumers receive up to $25,000 in upfront down payment assistance. First-generation homebuyers remain in the communities as owner-occupants. And unlike investor-purchasers, the homebuyers do not add to the overall increase of the cost of housing in communities. First-generation DPA allows eligible homebuyers to use the grant funds for upfront expenses like a down payment, mortgage closing costs or securing a lower mortgage interest rate, which allows consumers to fairly enter into homeownership. By comparison, a tax credit that is available after the home is purchased would not remove the main barrier to homeownership, which is the upfront cost.

Aligning the first-generation homebuyer definitions used by Fannie Mae, Freddie Mac and the Federal Home Loan banks with the Downpayment Toward Equity Act would ensure liquidity and a lack of complexity in the program's implementation for millions of prospective homebuyers. Fannie and Freddie should also include eligibility for first-generation homebuyers in their affordable lending programs to add 1.2 million households of prime home-buying age (25-54) to the group of potential participants, of which the majority are Black or Latino households.

The Federal Housing Finance Agency should require the Federal Home Loan banks to create equity plans supporting first-generation homebuyers. Congress must also pass legislation to substantially increase the amounts the Home Loan banks devote to housing and community development in exchange for their tremendous taxpayer subsidies.

If mortgage lenders with existing first-time homebuyer programs add first-generation DPA to the programs they could reduce racial homeownership gaps. Often existing first-time homebuyer programs provide insufficient funding and lack flexibility in origination requirements, weakening their effectiveness.

Passing the Neighborhood Homes Investment Act, with fair housing principles added to minimize displacement of current residents of distressed neighborhoods, would provide a tax credit to cover the gap in construction and rehabilitation costs of homes for owner-occupancy and would add 500,000 new and/or rehabilitated affordable homes in urban, suburban and rural communities hardest hit by the Great Recession. This tax credit proposal has broad bipartisan support in Congress.

Ensuring our nation's robust fair housing and lending laws are fully enforced must also be a top priority. According to the National Fair Housing Alliance 2024 Fair Housing Trends Report, housing discrimination complaints continued their upward trend in 2024. Private, nonprofit fair housing organizations processed over 75% of housing discrimination complaints and need $125 million to provide critical assistance to the victims of housing discrimination.

A focus on supply-side strategies alone will not produce the robust economic growth that is necessary to sustain the housing market, which accounts for nearly 20% of the nation's overall GDP. Communities of color will account for 70% of all future household growth, with Latinos accounting for the largest share. Thus, a housing strategy that does not include a focus on these consumers and their tremendous impact on the housing market can lead to market instability.

A combination of demand and supply strategies would address the nation's fair and affordable housing crisis. Together, they could ensure all communities have fairer access to homeownership and its wealth building benefits.

 - Nikitra Bailey, Executive Vice President, National Fair Housing Alliance