Federal bill offers hope to first-time homebuyers, but lack of housing supply threatens to blunt its impact in Virginia

A version of this article first appeared on the Virginia Mercury.

By the end of the year, the federal government could be offering new homebuyers an innovative deal to build equity in their investments twice as fast. If the Low-Income First-Time Homebuyers (LIFT) Act is passed as part of an anticipated bipartisan housing bill later this year, a new program under the Department of Housing and Urban Development could offer first-time, first-generation homeowners a 20-year mortgage for roughly the same monthly payment as a typical 30-year loan.

Although the legislation could extend a hand up to communities that have been excluded from building wealth through homeownership for decades, the proposal, if implemented, may be hindered by the biggest barrier to new homebuyers: a lack of supply.

Financing fast-track

Last month, a suite of Democratic lawmakers including Virginia Sens. Mark Warner and Tim Kaine revived the LIFT Act — first introduced in 2021 — as part of a federal push to empower “individuals traditionally underrepresented in the housing market to grow equity twice as fast.” Targeting first-time, first-generation homebuyers who earn 120% of their area median income or less, the bill is specifically designed to help narrow the United States’ gigantic racial wealth gap. Although much of modern America likes to pretend we live in a race-neutral, merit-based society far removed from the impacts of slavery and segregation, the impacts of centuries of prejudicial policies can still be seen in the drastic differences in Black and white household wealth.

Today, white Americans hold ten times more wealth than Black Americans and are 28 times more likely to become millionaires. As of this May, the median Black household in the US had just $24,000 in savings, equity and investments compared to the $189,000 in wealth of the median white household.

At a recent Richmond roundtable on wealth-building, Warner highlighted Virginia’s increasingly diverse population, noting that at least 35% of Virginians are people of color. “If everybody isn’t getting that fair shot, then the enterprise we call Virginia isn’t going to do as well. It’s not only morally right but from a business standpoint; it’s the right thing to make sure people get access to capital and access to housing.”

If passed, the LIFT Act would allow HUD to subsidize the mortgages of those who qualify to functionally make their 30-year loans into just 20-year repayment plans. That means after ten years, a LIFT Act homebuyer would build up twice as much equity in their investment compared with a typical homebuyer.

In addition to the LIFT Act, Sen. Warner also put forward the renewal and expansion of the federal Low-Income Housing Tax Credit and the New Market Tax Credit as additional items the bipartisan housing bill could pursue to help ease America’s housing affordability crisis. Such proposals were music to the ears of Greta Harris, president and CEO of the Better Housing Coalition.

“In the last three years the cost of delivering a unit of housing has almost doubled here in the Richmond market, so it’s getting tougher to deliver and the need is growing,” she said at the roundtable. “A comprehensive package of housing strategies would be really helpful. That becomes the launching pad for education and for economic growth.”

Supply shortage

Such rising costs of construction and local land use limits on where and how much housing can be built could, however, hinder the LIFT Act’s ability to reduce the racial wealth gap, should the proposal receive Congressional approval later this year. Innovative federal financing programs can only prove fruitful if homebuyers have enough supply to purchase.

The dire shortage of housing units has been the main reason local purchase assistance programs have failed in Arlington, for example. What good is a subsidized loan to a homebuyer if there are no houses in their price range to buy?

“We hear the laments of young buyers that they are buying later,” said Daphne MacDougall, a broker associate and realtor at the Steele Group in Richmond. “We don’t have enough houses in lower price points because we just don’t have enough houses. It’s supply and demand, so people in higher price points are going after homes that would normally sell at a lower price point because homes in general are still hard to find.”

Such struggles are not unique to the commonwealth, according to Mike Urban, the managing director of homeownership at Virginia Housing.

“The trends you are seeing in Virginia are similar to the national trends,” he said via a phone interview. “Listings are down, home prices are up, and interest rates have risen. Those are three of the biggest barriers currently.”

Although his agency offers Virginians closing cost assistance, free homebuyer education and down payment assistance grants, “obviously we can’t do anything about the lack of inventory,” he said.

An analysis of the crisis released by the White House last year laid out how America’s supply shortfall of 1.5 million missing homes has been years in the making. “Fewer new homes were built in the decade following the Great Recession than in any decade since the 1960s — constraining housing supply and failing to keep pace with demand and household formation,” stated the briefing.

Despite some pro-housing rumblings from Republican Governor Glenn Youngkin in recent years, the commonwealth is still not adding enough new homes to keep up with population growth, let alone enough units to ease the pressure on the 29% of Virginians who are housing cost burdened, meaning they spend more than 30% of their income on shelter. However, the state could take some practical steps to prime the well of housing production, according to Andrew Clark of the Home Builders Association of Virginia.

“We have inadvertently and sometimes advertently capped production,” he said. “A lot of it is localities with zoning set up to minimize the number of lots and homes that can be built, but it’s not just the localities. The [U.S. Army] Corps of Engineers has had the same budget at the state level for probably a decade. Complexity of development is going up and demand is going up, but you don’t have more state capacity to make it happen. If we’re telling agencies they have review authority, we ought to give them the resources they need to actually make it happen.”

Bipartisan bill

As chair of the Senate Committee on Banking, Housing and Urban Affairs, Ohio Senator Sherrod Brown will have the final say on whether Warner’s LIFT Act will be included in the bipartisan housing bill anticipated later this year. Alongside Kaine’s Fair Housing Improvement Act, the LIFT Act is similarly in limbo as to whether it will make the cut. Warner, however, is hopeful.

“I am very optimistic that we are going to take a bite on the housing issue this year,” he said. “This is an area where we have got to do more. We’ve been talking about it for a long time. We’ve got to put this on the table.”