The home appraisal industry has become the federal government’s latest target for a massive and unwarranted power grab. If this is not stopped, the government, not the markets, will set home prices, with potentially disastrous consequences.
To justify its takeover, the government is trying to scapegoat the appraisal industry — which is 97% white, 70% male and not well organized — for creating huge inequalities in racial wealth and home ownership. See last week’s report by the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE), led by Secretary of Housing and Urban Development Marcia Fudge and Director of the President’s Domestic Policy Council, Susan Rice, which revealed the existence of “injustices within of the current “claimed home loans and appraisal process” for communities of color.
The government’s case is unfounded. The PAVE report was based on three research findings. The first was a Federal Housing Finance Agency blog post that cited 16 examples of racially charged language from millions of peer review reports, but declined to disclose the total number of occurrences. The second was what Freddie Mac – one of the two mortgage giants – called “exploratory research,” which was later directly contradicted by a report by the other giant, Fannie Mae.
The third was a Brookings Institution report that boldly claimed that 23 variables could fully explain all possible non-racial factors affecting a home’s value. The only explanation left for the remaining value differentials between white and black neighborhoods was racial prejudice, which thoroughly discredits research we conducted for the American Enterprise Institute.
PAVE’s blatant disregard for relevant research, use of cherry-picked data, and discredited research leads to flawed conclusions. This suggests either a lack of interest in truth-telling or, more likely, that the report is just a smokescreen for centralizing ratings regulation under a new federal ratings agency.
What comes next shouldn’t surprise anyone. On Tuesday, less than a week after the PAVE report was released, the House Financial Services Committee will hold a hearing on the proposed Fair Appraisal and Inequity Reform Act, which would hand over the nation’s entire home appraisal process to this new agency.
More rigorous research shows that the racial disparity in homeownership is not the fault of the valuation industry, but stems from previous failed federal government efforts in areas such as welfare, school quality, crime, urban renewal, or public housing to address socioeconomic disparities. The data clearly shows that higher-income Americans and married people have higher homeownership rates, regardless of race. When we replicated the Brookings and Freddie studies, black, white, and Hispanic households all had similar outcomes when they were of similar socioeconomic status.
We don’t deny the legacy of past racism and persistent racial prejudice that put black people at a great income and wealth disadvantage, but history shows that government attempts to close socioeconomic gaps through housing policies often backfire.
Examples abound, but consider these two. The 1967 Presidential Task Force on Housing and Urban Development proposed a 10-year housing program to eliminate all substandard housing in the United States. It ended up wrecking many American cities through a combination of lax lending to underqualified borrowers and lax government oversight (especially on appraisals). , and predatory business arrangements between the Federal Housing Administration and lenders. Eventually, these actions wreaked havoc on black homes and neighborhoods.
Or consider HUD’s 1995 National Homeownership Strategy, which was designed to achieve a homeownership rate far higher than any in the country’s history. The real estate boom he created went bust, resulting in more than 10 million foreclosures and costing taxpayers dearly. Black homeowners and neighborhoods were among the hardest hit.
If home prices were no longer determined by markets but by a politicized valuation process, it’s easy to see how the results could exacerbate racial and ethnic disparities in wealth and home ownership. Politicizing property prices to even out perceived valuation inequalities could lead to massive mispricing. The hardest hit areas would be minority and rural areas where home sales are generally more sparse. This could lead to even bigger house price peaks and troughs, ultimately hurting lower-income households who are least equipped to withstand price declines.
Unless policymakers directly address differences in socioeconomic status, sham solutions will not be enough to improve housing outcomes for minorities. Unfortunately, PAVE seems to have missed another opportunity to make a lasting difference in the lives of many disadvantaged groups.
Mr. Pinto is a Senior Fellow of the American Enterprise Institute and Director of the AEI Housing Center. Mr. Peter is an AEI Research Fellow and Associate Director at the Housing Center.
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https://www.wsj.com/articles/a-wasted-opportunity-to-improve-housing-outcomes-for-minorities-home-valuation-race-pave-11648498576 A missed opportunity to improve the housing situation for minorities