The bubble in the housing market (and the attendant mortgage-backed securities, etc. that pumped up the bubble) is largely blamed for the rise in debt among American consumers. The fear of, and calling in, of that debt led to the collapse in credit in the early fall of 2008 that sparked the recession. Though economists generally agree that technically the US has been out of a recession since the winter of 2009, the fact remains that what we call ‘economic growth’ is really a stagnation: we are only replacing economic consumption with economic production. Better than a recession, perhaps, but not by much.
The problems in the housing market remain, though. Overproduction of housing has led to a glut of living space that no one can afford. At least not without a loan to get started. Which many people can not get because they do not have jobs that could sustain paying back the loan. A new report from The Association for Neighborhood and Housing Development in New York argues that banks have been unwilling to engage the lower-income housing market for some time, which only exacerbates the larger problem.
Community Reinvestment Act of 1977, despite its many successes (though the report concerns banks investing in communities in New York, it discusses statistics that are causes for concern in other metropolitan areas in the country). For example, the withering of support surely comes from the shock waves of the Great Recession, but so too have changes in federal law to the benefit of banking and investment conglomerates drawn interest and support away from communities:concerns banks’ reticence to remain committed to the
Structural changes in the banking industry over the last decade—including growth and consolidation—have led to a substantial shift in the way banks’ approach CRA [Community Reinvestment Act]-motivated lending and investment. Much of the growth is due to banks being permitted to conduct both commercial and investment banking, which was enabled through the repeal of the Glass-Steagall Act in 1999.The other factor driving this growth has been the consolidation of the industry that has occurred with the widespread practice of acquiring and merging with other institutions. The combination of fewer banks serving New York City and those that remain being “mega-banks” has had negative consequences on the ability of banks to serve the unique and varied credit needs of low- and moderate-income communities across the five boroughs. (p.15)
The report also lists a series of proposals to restrengthen the CRA and to offer support to folks in the under-served communities who have been hardest hit by the recession and the downward mobility imposed upon so many people.
• Encourage regulators to tailor assessment criteria to the local performance context and place more emphasis on community development such as the creation and preservation of multi-family rental housing and activities that promote economic development and neighborhood revitalization and stabilization.
• Strengthen the regulatory system by developing regulations that value both the quantity and quality of lending, investment, and services in performance exams.
• Incentivize development of local plans and reporting.
• Enhance meaning of “Outstanding” rating and increase incentives to achieve it. Establish a clear CRA commitment for Bank Holding Companies and all non-bank affiliates.
• Maximize consistency and transparency across the four federal regulatory agencies.
• Pass federal CRA Modernization legislation that would expand the type of institutions covered by CRA, create a community development test for commercial banks, require federal regulatory agencies to hold more public hearings and meetings when banks merge, and enhance accountability through data disclosure.
• Create a fully empowered, independent Consumer Financial Protection Agency. [We shall return to this particular issue later this week.]
The housing market faces problems of credit, to be sure. But so too is there a fear of what experts call a ‘shadow inventory’ of houses that do not appear to be on the market but would be (and will be) once the owner feels she or he would be able to get a better price for the house. Thus, along with the known foreclosed houses or never-bought surpluses, there might be many tens of thousands more units that will go on sale once people perceive an improvement in the housing market. Unfortunately, once those houses come ‘on line’ to compete with the already over-supplied market, the net effect will be yet another fall in the value of each unit. A great explanation about this shadow inventory, and the debate about how it might affect the housing market, was on NPR this morning and has been embedded here if you missed it:
(Or please follow this link: http://www.npr.org/templates/story/story.php?storyId=128923334)
The unfortunate fact is that the drive for housing dragged us into this situation, and the push to get the economy moving continues to be hampered by that drive for housing. Community associations are the ones closest to the action, and may be the best advisers for the politicians and regulators looking to steer banking back to the community-investment service it once was. Hopefully the report from The Association for Neighborhood and Housing Development will provide a much-needed stimulus in the effort to open credit to those who are working their way out of the recession from those who helped drive them into it.