Lending Regulations & Rental Demand

In a recent blog post, MBA’s David Stevens spells out what he believes to be the foundation of a current “housing crisis”. The short version goes like this:  regulation is killing the housing industry (insert image of dead horse being beaten). It’s no secret that lenders and realtors feel this way. Lenders have been timid for several years now, and Stevens’ thoughts are justified. But there is one thing in Stevens’ rant that is, maybe, an unforeseen consequence of tight lending regulations.

The regulatory environment is failing the very borrowers policymakers set out to protect – young families, thriving generations of new Americans, first time home-buyers; all the while driving up rental costs as home-ownership lags and rental demand soars.

The current regulatory environment is meant to ultimately protect the consumer. Ideally, this would mean people who can’t handle a mortgage are unable to get them. It protects the lender from having troubled assets and it protects the consumer from themselves (and predatory lending). Win-win, right? Except what’s happening, at least in some parts of the country, is rental demand is increasing. People can’t get loans to buy homes, so their other option is renting. If more and more people can’t get loans, and therefore more and more people need to rent for longer periods of time, rental homes become scarce. And if they’re scarce, they’re expensive. And if they’re expensive, potential home-buyers are unable to save more money to put toward buying a new home.

Renting is not a bad thing. It’s a necessary thing. But if the cost to rent increases at a quicker pace than what people can afford due to strict lending regulation, then it would seem housing recovery could be held at arm’s length longer than expected.

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