Op Ed: Senator Elizabeth Warren's Down Payment Assistance Plan Should Be Adopted-许筱艺的财新博客-财新网

Section 201 of U.S. Senator Elizabeth Warren’s American Housing and Economic Mobility Act of 2018 should be adopted. By providing down payment grants to first-time homebuyers living in formerly redlined or officially segregated areas, this section of the Act will be an important and necessary step in achieving the Act’s overarching purpose. Although Section 201 alone will not entirely close the wealth gap between white and black families, it will overall work with other sections of the Act to together serve as a baseline long overdue.

For context, the problem partly arose from the Federal Housing Administration (FHA)’s 1930s-60s system of rating neighborhoods according to their perceived stability. Under this system, poorly rated neighborhoods were ineligible for benefits including insured private mortgages, which would have reduced interest rates and down payments for real estate purchases. The FHA deliberately rated black-dominated neighborhoods poorly so that these neighborhoods, colored in red on the map, were usually ineligible for FHA backing. Redlining spread across the entire montage industry. Even after the 1960s, discrimination against blacks has persisted in housing, making it harder for blacks to own houses and build wealth in a country where wealth and financial stability are inextricably linked to housing opportunity and homeownership.

At its core, Section 201’s down payment grant will tackle inequity that federal housing policy failures have left behind by building back some of the lost wealth. When an eligible resident from the target population successfully obtains the down payment grant and subsequently purchases a house, he/she will have a real opportunity for social mobility. In white communities, a young couple often obtain their first mortgage through intergenerational wealth (e.g. in-laws), but largely due to the aforementioned historical reasons, Section 201’s target population often lack the same kind of intergenerational wealth. Here, Section 201’s down payment grant will act in lieu of intergenerational wealth, helping buyers to build wealth themselves through home ownership. Significantly, the down payment grant has the potential to transform the vicious cycle between lack of home ownership and lack of wealth into a positive story of the American Dream, where a previously marginalized family gradually accumulates wealth across generations, thanks to the initial federal down payment assistance.

Additionally, part (f) of Section 201 specifically appropriates part of the funds to carry out consumer education efforts. As analyzed above, due to the discrimination embedded in the American housing system over the past few decades, black people often have poor access to information on legitimate means of obtaining mortgages. Blacks living in redlined communities often have no financial resources to access the relevant information that could better their housing prospects. Section 201(f) will reduce unconscionable montage contracts by helping to alleviate information asymmetry-related problems through education. It is reassuring to see a specific clause dedicated to promoting this new provision to those in need, so that they will know their rights.

Granted, Section 201 is not perfect and will not by itself magically solve all parts of this complex problem. It is worth addressing some possible counterclaims. First, opponents would likely object to the amount of funding needed to provide the down payment grants. However, the money will come from increasing estate taxes, which will not negatively impact the target population itself. In terms of those that will be affected, Moody Analytics’ Chief Economist Mark Zandi concluded based on economic analysis that “the wealthy households that will pay more in estate taxes have substantial financial resources and will not significantly change their spending and saving behavior[,]” should Section 201 be adopted.

A second counterclaim may be that while Section 201 solves the demand problem for affordable housing, it does not solve the supply problem. However, one should take into account that Section 201 is part of a larger proposed Act, which also includes sections that significantly subsidize housing developments to incentivize more affordable housing supply, especially for localities that reconfigure zoning laws more favorably to the Act’s target population—together, separate sections of the Act will holistically improve the affordable housing situation from both the demand side and supply side.

Finally, while opponents may contend that down payment per se does not directly improve the target population’s credit scores—a valid concern given the importance of credit scores in American society at large, especially in the house ownership context—the down payment grant will substantially lower the burden for those looking to purchase houses from the Act’s target population. You must start somewhere, and without something as foundational as a down payment grant that ejects fundamental equity into the long-unjust system, one would find it even more difficult to level the playing field. In other words, Section 201 will offer an opportunity for its target population to gradually strengthen credit scores: the down payment grant will provide more security for those individuals in the short term, so that they can focus on accumulating wealth through labor to gradually improve their credit scores.

The problem of housing discrimination is complex. Its persistence over time has left generations of African Americans segregated, impoverished, and disillusioned of hope for social mobility for their own children—it is time to remedy this vicious cycle through policy. A single section of a politician’s proposal will not resolve the problem entirely given its complexity and prevalence; yet, Section 201 is an important provision to start a new reform that will change the life of many in need for the better.

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