‘89 NAHB Homework : New President Names Panel on Affordability

Affordability will be the major issue facing the nation’s builders this year, according to Shirley McVay Wiseman, the new president of the National Assn. of Home Builders and the first woman to head the 157,000-member trade group.

Wiseman, a home builder from Lexington, Ky., and Lake Wales, Fla., who worked in the U.S. Department of Housing and Urban Development from 1983 to 1985, said the NAHB has adopted as its theme this year: “Where Will Our Children Live?” The theme was borrowed--with permission--from Merrill Butler, the Irvine, Calif., builder who served as NAHB president in 1980.

Appointed Task Force

“Moderate- and middle-income families, the best-housed people on Earth, are discovering that, for their children, the dream of owning a home is now turning into a nightmare,” Wiseman said. “Of the nearly 59 million Americans who are in, or who will be entering, their prime home buying ages during the next four years, fewer than half can expect to become homeowners.”

To address the affordability problem, Wiseman, who succeeded Dale Stuard of Newport Beach, Calif., has appointed a task force that will come up with short- and long-term ways to solve the problem. She emphasized that she doesn’t want another report or white paper that will gather dust on shelves, but a concise list of ways and means to solve the nation’s affordability crisis.

In response to a question, Wiseman said the threat to the mortgage-interest deduction is real, not a ploy to trade for something else down the line when Congress begins tinkering with the tax laws.

Stuard had said at his final press conference during the 45th annual NAHB convention at the Georgia World Congress Center here that threats to the mortgage-interest deduction are real in the wake of recent tax bills that have limited the deduction and have phased out the consumer interest deductions. There are many groups that want to eliminate the mortgage interest deduction, Stuard said. The deduction costs the U.S. treasury about $35 billion a year, Stuard said, making it a tempting target for Congress.

He said he has received a pledge from President George Bush to protect the deduction. The first limit on the deduction was enacted in the 1986 tax bill, when it was limited to the interest on up to $1 million of combined first-and second-home debt.

At another session of the four-day convention, the largest in the association’s history, Rep. Raymond J. McGrath (R-N.Y.), a member of the House Ways and Means Committee, said the threat to the deduction is real. He suggested that the association should mount a strong campaign to defend the deduction.

Rising land costs, increases in mortgage-interest rates and the affordability issue are among the problems that builders, polled during the convention, expect to affect the housing industry in 1989.

In general, builders expect housing activity in 1989 to be slightly below 1988 levels, when 1,487,200 housing units were produced. The official NAHB prediction is for a 7.2% decline this year, to 1,380,000 starts, with 1,010,000 single-family houses, down 6.5% from 1988, and 370,000 multifamily units, down 9.1% from 1988.

The poll of the 705 persons during the convention was heavily weighted toward the South, with 39%, and the Midwest, with 34%, with only 9% from the West, according to Kent Colton, NAHB executive vice president.

More than half of those surveyed said they expected mortgage-interest rates to increase somewhat during 1989. The association has projected that rates could reach as high as 12% by midyear, possibly drifting downward toward the end of the year. More than three-fourths of those polled expected housing starts to be about the same or somewhat less than in 1988.

Housing Industry Problems

Of the many problems facing the nation’s economy, 54% of those polled ranked the federal deficit as the major problem, followed by 25% who thought interest rate increases were the top problem.

Of the problems facing the housing industry, builders were most concerned about the cost of land (34%), followed by interest rates (29%) and government regulations (16%). Builders reported that housing affordability has become a very serious (47%) or somewhat serious (40$) problem for first-time buyers.

Remodeling, once the poor relative of the building industry, has become a major factor in recent conventions, with this convention showing the most attention paid to this $100-billion-a-year industry, Colton said. Of those polled during the convention, 71% said that remodeling activity would be “fair or good to excellent” in 1989. Colton said that remodeling activity is expected to reach $105 billion to $110 billion this year, up sharply from $70 billion in 1984.

Today’s affluent homeowners are willing to travel farther to work to get the larger, more elaborate houses they want when they move up from their current ones, according to yet another survey released at the convention. This one is based on 1,776 homeowners who have purchased houses insured by the Home Owners Warranty (HOW) program since 1980.

Dream Seems Attainable

These affluent baby-boomers plan to buy a house with about 2,360 square feet--about 30% larger than their current homes--with a median price of $125,000. About 16% plan to spend $200,000 or more for that move-up dream home. With a median household income of $53,412--20% of the respondents made $75,000 or more--the dream of moving up seems attainable.

Alan Greenspan, chairman of the Federal Reserve Board, cited and praised the stability of the past six years in the economy in general and the housing industry in particular in a speech to the association’s board of directors on the final day of the convention.

Greenspan said the past six years have seen single-family starts at or slightly above the 1 million per year mark, consistent with demographic trends, such as household formations, which are averaging 1.5 million a year.

Most of Greenspan’s half-hour address was positive, but he also cited the nation’s declining home ownership rate--this decade is the first to see the ownership rate decline (currently about 64% contrasted with the peak of 65.4% in 1981)--and the sharp division between the generally affluent homeowners and all too often poor renters.

Renters typically earn less than 60% of what homeowners make and the gap is widening, he said. Builders must address the problems of affordability, including constructing more affordable rental units in the face of tax laws that discourage such construction, but Greenspan promised that the Federal Reserve Board will do its best to ensure continued financial stability.

The Fed chairman said that major growth areas of the building industry in the next few years will be remodeling and construction of move-up houses, along with a growing market share (currently about 5%) in the second-home market.