Warnock Discusses Housing Affordability With Powell: Many ‘Feel The Sting Of Unaffordable Homes’

2 months ago

Before the Congressional Recess, Sen. Raphael Warnock (D-GA) questioned Chair of the Federal Reserve Jerome Powell on housing during a Senate Banking Committee hearing.

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Transcript

00:00Senator Warnock is recognized, who is decidedly not boring.

00:08Thank you very much, Mr. Chairman.

00:10The latest monetary policy report shows inflation is,

00:16and housing costs, is gradually easing.

00:20That's good news.

00:21But many Georgians still feel the sting

00:25of unaffordable homes and mortgages.

00:27And one reason for this, you and I have discussed this,

00:31is that we aren't building enough houses.

00:34Twenty-two studies published in the Journal

00:37of Economic Geography found that for every 10 percent increase

00:40in the housing stock, rents decreased by 1 percent.

00:45We've discussed this issue, particularly the effects

00:49of housing supply on housing costs.

00:52And we agreed that while the Federal Reserve does not control

00:54housing supply, it can help create the environment

01:00that encourages the construction of new housing,

01:02particularly affordable housing.

01:06Chair Powell, how has the Fed been working

01:09to foster an environment that encourages home construction?

01:13And what, in your view, are the challenges that remain?

01:17So, I mean, in the long run, the absolute best thing we can do

01:22for the housing market and for the economy is

01:25to sustainably bring inflation back down

01:28so that people aren't talking about it anymore.

01:30And it's just assumed by everybody in their daily lives

01:34that inflation will be around 2 percent,

01:36so we don't need to talk about it,

01:37which is where we were for a long time.

01:39We want to get back to that.

01:40Interest rates can come down then,

01:42and the housing market can return

01:44to the state it was in before the pandemic,

01:47which was to say really tight.

01:49We don't have enough housing.

01:50And that's not really a monetary policy issue.

01:53In the short term, though, you know,

01:56I would say tight monetary policy weighs

02:00on the housing market.

02:01You know, the policy works through interest-sensitive

02:04spending, and housing is definitely at the top

02:08of the list of interest-sensitive spending.

02:10So we understand that, you know, we're suppressing,

02:14not suppressing, but our higher interest rates, you know,

02:19have led to lower housing starts and lower activity

02:23in the housing market.

02:23But we're doing that to get back to 2 percent inflation

02:26for the whole economy so that the housing market can be

02:30on a better foundation.

02:31Well, yeah, and related to that,

02:33when you have these high interest rates, of course,

02:36you see across the country, but particularly in a state

02:40like Georgia, these institutional investors

02:46who are coming into the space, and they're buying houses

02:49in all cash, boxing out first-time,

02:52first-generation home buyers.

02:54And of course, the conditions for them doing that improve

02:57to their favor with higher interest rates.

03:00Would you agree with that assessment?

03:03I know some of that's happening.

03:05I don't know that higher interest rates make it.

03:06I mean, some of that's, they're working with.

03:08When you've got higher interest rates

03:10and you've got institutional buyers

03:11who can purchase it all cash, doesn't that further.

03:14They have to borrow the money at higher interest rates.

03:15I'm just saying higher interest rates doesn't make their

03:18investment any cheaper.

03:20Notwithstanding, I understand it's a sensitive issue.

03:22And in most markets, it's still a pretty small portion

03:27of the outstanding housing stock.

03:29But it's, and it's not an issue, it's not an issue for us.

03:31You know, they're a legal buyer of housing.

03:33Our job is really the whole economy.

03:36I mean, it's more of a question for legislatures.

03:41So how can the Fed better deploy its monetary tools to ensure

03:45that we are meeting key inflation objectives

03:47like housing affordability?

03:50You know, I think the best thing we can do is to,

03:53is kind of what we think we've been doing,

03:56which is to move carefully as we think about loosening policy

04:00and make sure that once, that we do that,

04:03when we've got greater confidence

04:04that inflation is moving sustainably down toward 2%.

04:07We're also keeping a close eye on the labor market.

04:10And if we see unexpected weakening there,

04:12then we could respond to that too.

04:14But that's really the best thing we can do for the whole economy

04:17and very specifically for the housing market too.

04:19And you will point out that you're limited in terms

04:22of your influence there.

04:25And there is a role for Congress to be sure,

04:29which is one of the reasons I wanted to be on this committee,

04:33to introduce a down payment toward Equity Act

04:36with my colleague, Senator Butler.

04:39This bill would help first generation homebuyers compete

04:41with Wall Street institutional investors by helping

04:44with down payment costs, closing costs

04:46and costs to reduce interest rates.

04:49I look forward to continuing productive conversations

04:53with you and looking

04:55at how we can make housing more affordable for all Americans.

05:00I'm running out of time here, but one of the other concerns

05:05that I maintain with respect

05:09to reducing the racial wealth gap is this issue

05:13around home appraisals.

05:15And the Fed is part of the interagency task force

05:18on property appraisal and valuation equity.

05:21What expertise and perspective has the Fed brought

05:25to this task force?

05:26And how are you responding to this issue of home appraisals?

05:34So, as you know, we've been an active participant

05:37in that task force and we bring all of the expertise we have

05:41in the housing market as well as regulatory supervisory

05:45and economic expertise generally.

05:47As we look at that, and I'll also say

05:50that our strongly held view is

05:52that discrimination has no place in the banking system

05:55and that includes appraisals and other regulations.

05:58I agree with that and quickly I was glad to see that CFPB

06:01and other agencies recently finalized a rule

06:04that creates strong anti-discrimination standards

06:07for automated home evaluations.

06:11The Fed has not yet approved this rule.

06:13Why not and does the Fed plan to do so?

06:17Sorry, why do we?

06:19You've not yet approved the rule that was made that put in,

06:24that was suggested by the CFPB.

06:26They finalized the rule.

06:27But do we, sorry, I didn't, I'm not aware

06:30that it's a rule that we have to finalize too.

06:33Is that the case?

06:34That is my understanding.

06:36I will, let me follow up with you on that.

06:37I'm not aware of that.

06:38Okay, thank you.

Warnock Discusses Housing Affordability With Powell: Many ‘Feel The Sting Of Unaffordable Homes’

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