Bush Defends Reagan Policies on Housing : But Acknowledges Dispute Between Realtors Assn. and Administration Over Tax Proposals

Vice President George Bush, principal speaker at the National Assn. of Realtors’ annual convention here last week, defended the Reagan Administration’s record on home ownership in the wake of the association’s strong anti-administration statement of policy involving housing issues.

But before he did that, upon arrival at the annual meeting of the realtors, the vice president held a press conference and, incongruously, talked at length about the Reagan Adminstration’s Operation Hat Trick II--dealing with the theme of international drug trafficking, a subject not of particular concern to most of the 15,000 attending the association’s 78th annual meeting.

Convention officials and reporters recalled that Bush had used the same topic for his main theme at the association’s 1981 convention in Miami.

After reporters changed the subject at the press conference, Bush defended the Reagan Adminstration’s housing policies, prior to his speech to the convention, and acknowledged that there is a dispute between the association and the Reagan Adminstration over several tax proposals now under consideration by Congress.

He did not discuss drug trafficking during his address to the convention but he did react to the association’s strongly worded policy statement on housing, which firmly disagrees with the Administration’s tax revision proposals, labeling them as anti-home ownership, anti-savings and anti-investment, not only for real estate, but as they affect the nation’s entire economy.

The statement--drawn up by association leaders who were slow to react against a conservative Republican administration--followed four years of declining home ownership percentage levels, combined with a tax reform proposal that is viewed as anti-housing.

“We believe the proposal would result in a higher deficit, less employment, increased cost to homeowners and renters, a severe decrease in the value of existing real estate and less home ownership,” the association’s policy statement reads.

In his most forceful statement yet on the subject, Jack Carlson, vice president and chief economist of the 680,000-member association said that the administration’s policies have resulted in 4 million fewer households achieving the American dream of home ownership in the last five years.

This perceived anti-home ownership policy of the Reagan Administration is not only poor economics--depriving the nation of the higher savings levels generated by homeowners compared to renters--it is a “bad social policy change” from the continuing emphasis on home ownership that has permeated the nation since the Great Depression more than 50 years ago, Carlson added.

Carlson said that in 1981--the same year President Reagan was inaugurated--the “socialist-dominated” United Nations made a dramatic policy change away from support of government ownership of housing to one that supported private home ownership.

He added that home ownership is a positive force against virtually all of the nation’s social problems, and that the continuing decline in home ownership--especially among the ranks of prospective first-time buyers--is cause for alarm.

During his address, Bush told the conventiion, “We must continue to work so that an increasing percentage of Americans can own their homes, young families as well.” He added that he believes Reagan will not support any tax revision that is “anti-home ownership, anti-investment, anti-business.”

Echoing the sentiments of many speakers during the five-day convention, Bush declared that federal budget deficit reduction must be the nation’s top priority to “keep the nation’s economy growing, not just for the next year or the next three years, but into the next decade and the next century.”

At the news conference, Bush said that while the administration strongly supports the budget reduction proposal by Sens. Phil Gramm (R-Tex.), Warren Rudman (R-N.H.) and Ernest Hollings (D-S.C.), the White House hopes the measure doesn’t get “decimated by a lot of exclusions somewhere along the road.”

Gramm-Rudman-Hollings calls for a scheduled annual reduction of the deficit through 1991, when the budget would be balanced.

Another convention speaker, Senate Majority Leader Robert Dole (R-Kan.), called for a constitutional amendment for a balanced budget, citing the 32 states that have petitioned Congress for such action, only two states shy of action. California is not one of the 32 states that have called for this constitutional convention.

Dole also urged adoption of a presidential line-item veto, a tool already available to 43 governors. Congress needs this discipline as much as the President needs a line-item veto to keep federal spending down, Dole said.

On the issue of tax reform--much debated by housing trade associations this year--Dole said that it won’t happen in 1985, and “whatever we see in mid-1986 will be less than President Reagan’s tax reform proposal and a lot less than the original proposal by the Treasury Department.”

While he stated his support for Gramm-Rudman-Hollings, Dole said that it is legislation that can be undone by one vote, unlike a constitutional amendment on a balanced budget. Still, he urged his audience to call their representatives in Congress asking them to support the budget deficit proposal of the three senators.

Both the outgoing president of the association, David D. Roberts of Mobile, Ala., and the incoming one, Clark E. Wallace of Moraga, Calif., agreed that the Gramm-Rudman-Hollings measure is the best proposal so far in the war against federal deficits.

“I think we will be talking about tax reform in 1986,” Wallace said. “We will probably get piecemeal tax reform, not a wholesale approach because it’s too hard to get a consensus.”

Roberts, who was dressed as king of the mardi gras and rode on a float in an elaborate opening program in the New Orleans Convention Center, said that while interest rates may go down slightly next year, the decline will be more than offset by rising home prices. Interest rates could drop by about 1%, according to the latest statistics from the realtors’ association.

Roberts noted that the association’s Housing Affordability Index, which measures the ability of a typical family to afford the median-priced existing home, reached 98.1% in September, the highest level in 6 1/2 years. The index means that a family with the median gross annual income that month had 98.1% of the income needed to qualify for an 80% loan on a median-priced ($75,300) existing home.

The index was in the 60% range in 1982, Roberts recalled. He also attacked the new mortgage underwriting guidelines adopted earlier this year by the Federal National Mortgage Assn. (Fannie Mae).

The guidelines for lenders from whom Fannie Mae buys loans includes stiffer income requirements for low down-payment loans, greater restrictions on gifts, builder interest buy downs and other contributions and limits on the types of adjustable rate mortgages that Fannie Mae will buy.

Naturally, first-time buyers, who have not had the chance to build up equity in a house that can be used as a down payment, are feeling the effects of this policy change the most, Roberts said.

Appearing at an outlook panel on the economy in real estate with Lyle Gramley, chief economist of the Mortgage Bankers Assn. and Tim Howard, chief economist of Fannie Mae, the realtors’ Carlson said that as mortgage interest rates decline, 3.3 million existing single-family homes could be sold next year, with the total rising to 3.4 million in 1987.

Existing-home sales this year are expected to total about 3.17 million, the highest since 1979 when 3.83 million homes changed hands. The 1985 predicted total represents a 10.4% improvement from 1984’s 2.87 million existing-home sales.

Carlson added that housing starts are expected to total about 1.76 million units this year, reaching 1.8 million in 1986. In 1984, 1.77 million units were started.

Howard, replying to criticism about Fannie Mae’s tightening of underwriting standards, said the current 1% national foreclosure rate is high, but not abnormally so. It reached similar levels as recently as 1976-77, but housing appreciation in the late 1970s made foreclosures less of a problem than they are today when modest rates of housing appreciation are the norm.

(Carlson’s economic outlook pegs housing appreciation rates in the 3.3% to 4.2% range, about the level of inflation.)

Gramley emphasized that the current high levels of real interest rates are the single most important factor in declining home ownership, especially for first-time buyers--and at the single most important force in keeping the rates high is the enormous federal budget deficit.

Not all the speakers at the convention liked the Gramm-Rudman-Hollings budget-balancing formula. Rep. Dick Cheney (R-Wyo.) called it a “meat-ax approach,” that may be too limited in the number of programs from which automatic spending cuts could be made. He noted that the House version would exempt programs such as Medicare, Medicaid, Aid to Families with Dependent Children and food stamps from budget cuts--fully 71% of the federal budget would be exempt from cuts under the House version.

Rep. Robert T. Matsui (D-Sacramento) said that a better solution to the deficit program would be to institute a comprehensive deficit reduction package that includes spending cuts in both defense and domestic programs. So far, he added, Congress has found this too difficult a task.

Rep. Delbert Latta (R-Ohio) said work should continue on a constitutional amendment on the budget. Despite the Nov. 7 defeat of a constitutional convention call in Michigan, Latta urged realtors to continue their work for an amendment.

“I predict that if we get one more state, we’d get Congress to act, because the last thing they want is a constitutional convention,” he added.