Cassidy says private capital is available, but unnecessary regulations are in the way of letting builders build
It has been well publicized that many markets in the United States are short of housing inventory, making it challenging for lower-income and first-time homebuyers to enter the market.
Efforts are being made by the government and by investors to try to solve the problem. The 21st Century ROAD to Housing Act became law on July 11 with the hopes of removing some of the red tape that was holding back housing construction.
On the investor side, the Wall Street Journal reported on Sunday that JPMorgan Chase was set to invest $750 billion to boost housing supply, including the promise to build 1 million affordable housing units.
While new legislation and investment help, they don't solve the problem completely.
Frank Cassidy (pictured top), who most recently served the Trump administration as FHA commissioner before returning to the private sector as senior managing director at Walker & Dunlop, knows both the challenges faced by loan originators and by government officials to try to deal with the challenges in the housing market.
When Cassidy looks at the housing shortage, he sees a challenge that goes beyond the homebuyers unable to find a property they can afford.
"Housing is not just a real estate issue anymore," Cassidy told Mortgage Professional America. "It's an economic infrastructure issue. For decades, we treated housing more as a social issue. Today it's an economic competitiveness issue. Companies can't attract workers if those workers can't afford to live nearby. So the communities that build housing will attract employers. Communities that don't will lose out on jobs and investment."
Clearing the red tape
Cassidy said JPMorgan's move is meaningful as a signal that major institutional capital is ready to flow into housing, but that capital alone cannot solve the supply shortage and affordability challenges.
"Money doesn't solve the problem. Supply is the problem," he said. "There's no shortage of investors looking to invest in housing. The biggest bottleneck isn't the financing, it's the government process. If it takes five years to approve a project, no amount of capital from Wall Street can fix that."
He said the fix requires modernizing zoning, streamlining permitting, and cutting through environmental reviews that stretch projects by years, and he pointed to Texas as compared to California and New York to make the case.
"Look at states like California and New York — it's impossible to build there," he said. "Compare that with states like Texas and markets like Austin. There's not a housing shortage in Austin. It's actually the opposite. Housing prices and rents are coming down because they've let builders build. In California, it takes five, ten years just to get through the permitting and approval process."
Cassidy said the public-private model is the right framework, but only when the government's role is to reduce barriers rather than replace the market. He pointed to FHA itself as an example.
"FHA has been around since 1934. It doesn't lend a dollar — all FHA does is guarantee a loan that a private lender makes," he said. "The goal should be to use every federal dollar to attract multiple dollars of private capital. You can't subsidize your way out of a housing shortage. You have to build your way out of it."
What ROAD will do for housing
Cassidy said the 21st Century ROAD to Housing Act represents the most significant housing legislation since the low-income housing tax credit and addresses several of the structural barriers he described.
One of the changes he called out specifically is the redefinition of manufactured housing, a sector he oversaw at HUD during his time as FHA commissioner.
"Manufactured housing has always been defined as having that steel chassis on the first floor, so you've never been able to build second and third stories," he said. "The Road to Housing bill removes that requirement. So you can build these homes in a factory, put them on a foundation and build second and third stories. And these are beautiful homes, granite countertops, hardwood floors. They're not the mobile home parks of the 70s and 80s."
Cassidy said the JPMorgan move is important, but it won’t be the last large financial investment into the housing space.
"JP Morgan won't be the last," he said. "Other banks, pension funds, insurance companies and institutional investors are watching this closely. If they see successful projects, more capital will follow. The biggest beneficiary should ultimately be first-time homebuyers and working families, but only if supply actually increases."
Another area Cassidy said was worth watching closely is FHA multifamily and healthcare financing, particularly the 221(d)(4) new construction program, which provides interest-only construction financing that converts to a 40-year fixed-rate permanent loan.
"I would watch that very closely," he said. "There are a lot of efficiencies coming out, many of which I put in place when I was FHA commissioner."
Cassidy said he has spent his entire career as a loan originator and left brokers with one piece of advice.
“I've been in mortgage banking as a loan originator my entire career,” he said. “I've been on the frontline originating financing for large multifamily apartment deals and senior housing. To all the loan officers out there, you just got to keep grinding, keep looking to put deals together, and keep trying to help get more people."
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