Home Real Estate Real Estate and the Party Platforms: Not a Party, Y'all

Real Estate and the Party Platforms: Not a Party, Y'all

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We gonna party like it’s 1999

So the Democratic Party’s 2012 Platform is somewhat in the news these days. But that whole kerfuffle reminded me that I hadn’t looked through either party’s platform to see what they said about real estate, the industry in which I work and cover and opine. Since it’s highly unlikely that anyone with a sense of self-preservation, who isn’t paid to read the damn things, would voluntarily subject themselves to going through the two party’s platforms… I sacrifice myself to bring you the truth. Well, we are talking about political parties saying stuff, so let’s not go so far as to say truth. How about, I bring you the words, and do a little analysis/fearmongering on top of it all?

Let’s start with the Donks, since they’re having their party in Charlotte right now.

Democratic Party Platform, On Real Estate

The actual document itself can be found here, if you’d like to read it for yourself. As to real estate issues, a couple of things.

First, I searched the document for “mortgage interest deduction”. Zero hits. Nada. Zip. Nothing. Those words simply do not appear in the 2012 Democratic National Platform.

Second, here’s the actual language as does appear:

Stabilizing the Housing Market and Hard-Hit Communities.

For more than a decade, irresponsible lenders tricked buyers into signing subprime loans while too many homeowners got in over their heads by buying homes they couldn’t afford. But when the housing bubble burst, it hurt everyone, including responsible homeowners who played by the rules, but saw their home values decline and their neighbors’ houses sit vacant. The housing market’s dramatic collapse did more than punish millions of innocent Americans; it also triggered the economy’s downward spiral into recession.

President Obama took swift action to stabilize a housing market in crisis, helping five million families restructure their loans to help them stay in their homes, making it easier for families to refinance their mortgages and save hundreds of dollars a month, and giving tax credits to first-time home buyers. He also cracked down on fraudulent mortgage lenders and other abuses that contributed to the housing crisis. Democrats have held the largest financial institutions accountable by requiring them to provide relief for homeowners still struggling to pay their mortgages and to change practices that took advantage of homeowners. Democrats also understand the importance of helping communities fight back against the foreclosures that threaten entire neighborhoods, which is why the President proposed to expand the successful neighborhood stabilization efforts in his American Jobs Act.

Too many people still owe more on their homes than they are worth. That is why Democrats are fighting to give every responsible homeowner the chance to refinance their home, spurring investment in communities that have been hit hardest by foreclosure, and taking whatever steps we can to avoid more foreclosures. The President remains committed to creating an economy that’s built to last, where home ownership is an achievable dream for all Americans.

A more or less typical political passage, praising the actions of President Obama, and taking the “largest financial institutions” to the woodshed.

Elsewhere in the Platform, the Dems mention the fact that President Obama helped families refinance their underwater mortgages at least three times, and probably more. My eyes did start glazing at some points, y’know. I’m only human. But do hold that thought.

And of course, we all have heard by now that the Democrats are invested in “everyone paying their fair share”:

In order to reduce the deficit while still making the investments we need in education, research, infrastructure, and clean energy, the President has asked for the wealthiest taxpayers to pay their fair share.

Hold that thought, as we turn to the Republicans.

The Republican National Platform on Real Estate

The actual document is here if you’d like to read it for yourself.

First, you get the expected litany of “lower taxes, lower spending” from the GOP Platform. There’s too many instances to list or copy/paste them all, so let’s just say that this preamble type of language infuses the rest of the document:

Republicans believe in the Great American Dream, with its economics of inclusion, enabling everyone to have a chance to own, invest, build, and prosper. It is the opposite of the policies which, for the last three and a half years, have stifled growth, destroyed jobs, halted investment, created unprecedented uncertainty, and prolonged the worst economic downturn since the Great Depression. Those policies have placed the federal government in the driver’s seat, rather than relying on energetic and entrepreneurial Americans to rebuild the economy from the ground up. Excessive taxation and regulation impede economic development. Lowering taxes promotes substantial economic growth and reducing regulation encourages business formation and job creation. Knowing that, a Republican President and Congress will jumpstart an economic renewal that creates opportunity, rewards work and saving, and unleashes the productive genius of the American people. Because the GOP is the Great Opportunity Party, this is our pledge to workers without jobs, families without savings, and neighborhoods without hope: together we can get our country back on track, expanding its bounty, renewing its faith, and fulfilling its promise of a better life.

Now, REALTOR Party types might get very excited that the words “American Dream” appear here. Hold yer horses, fellas, cuz here comes the actual section on Housing:

Ending the Housing Crisis and Expanding Opportunities for Homeownership

Homeownership expands personal liberty, builds communities, and helps Americans create wealth. “The American Dream” is not a stale slogan. It is the lived reality that expresses the aspirations of all our people. It means a decent place to live, a safe place to raise kids, a welcoming place to retire. It bespeaks the quiet pride of those who work hard to shelter their family and, in the process, create caring neighborhoods. Homeownership is best fostered by a growing economy with low interest rates, as well as prudent regulation, financial education, and targeted assistance to responsible borrowers.

The collapse of the housing market over the last four years has been not only a severe blow to the entire economy, but also a personal tragedy to millions of Americans whose homes have lost value and to so many others who have lost their homes. Combined with high unemployment, that decline has left countless homeowners saddled with mortgages exceeding the value of their homes. The response of the current Administration has done little to improve, and much to worsen, the situation. By discouraging private sector investment, it has stalled the housing recovery. Its massive intervention in the housing market, with the Federal Housing Administration (FHA), Fannie Mae and Freddie Mac backing nearly all new mortgages, has hit the taxpayers with a bill for almost $200 billion to bail out the latter two institutions. It has spent billions more on poorly designed and ineffective housing assistance programs. Making matters worse, the Congress, under Democrat control, enacted the Dodd-Frank Act, a massive labyrinth of costly new regulations that deter lenders from lending to creditworthy homebuyers and that disproportionately harms small and community banks. As a result, home sales remain weak, investment in housing remains depressed, construction industry jobs remain down, and mortgage lending has yet to recover to pre-crisis levels.

Rebuilding Homeownership

We must establish a mortgage finance system based on competition and free enterprise that is transparent, encourages the private sector to return to housing, and promotes personal responsibility on the part of borrowers. Policies that promote reliance on private capital, like private mortgage insurance, will be critical to scaling back the federal role in the housing market and avoiding future taxpayer bailouts. Reforms should provide clear and prudent underwriting standards and guidelines on acceptable lending practices. Compliance with regulatory standards should provide a legal safe harbor to guard against opportunistic litigation. Fannie Mae and Freddie Mac were a primary cause of the housing crisis because their implicit government guarantee allowed them to avoid market discipline and make risky investments. Their favored political status enriched their politically-connected executives and their shareholders at the expense of the nation. Both Fannie Mae and Freddie Mac should be wound down in size and scope, and their officials should be held to account.

The FHA, tripled in size to more than $1 trillion under the current Administration, has crowded out the private sector and is at risk of requiring a taxpayer bailout. It must be downsized and limited to helping first-time homebuyers and low- and moderate- income borrowers. Taxpayer dollars should not be used to bail out borrowers and lenders by funding principal write-downs. While the federal government must prosecute mortgage fraud and other financial crimes, any settlements received thereby should be directed to individuals harmed by the misconduct, not diverted to pay for unrelated programs. FDIC insurance for bank depositors must be preserved. However, to correct for the moral hazard created by deposit insurance, banks should be well capitalized, which is the best insurance against future taxpayer bailouts.

The federal government has a role in housing by enforcing non-discrimination laws and assisting low-income families and the elderly with safe and adequate shelter, especially through the use of housing vouchers. Homeownership is an important goal, but public policy must be balanced to reflect the needs of Americans who choose to rent. A comprehensive housing policy should address the demand for apartments and multi-family housing. Any assistance should be subject to stringent oversight to ensure that funds are spent wisely.

Lots of talk about getting rid of Fannie/Freddie, lots of talk about minimizing the government’s role in housing, and even talk of downsizing the FHA. But, uh… no mention of the mortgage interest deduction, the centerpiece of NAR’s national lobbying program.

But… I thought for sure that NAR had won some sort of major victory, restoring language in the GOP Platform supporting the mortgage interest deduction? In fact, that win was supposed to mean that activism by NAR and REALTORS gets results, since the Republicans had rejected language supporting the mortgage interest deduction as late as August 21, when the WSJ reported:

The committee drafting the Republican Party’s platform rejected a bid to include a plank calling for preservation of the mortgage interest tax deduction Monday.

The battle pitted allies of the beleaguered real-estate industry – who favor the deduction – against some conservative activists, who favor a simpler tax code with fewer deductions overall. Party leaders also opposed the amendment, hoping to avoid a drawn-out battle over preserving a range of different tax breaks in the party platform.

NAR and its allies got the support for the mortgage interest deduction restored. Oh yes, here’s that language: “…we must preserve the mortgage interest deduction.” Indeed, the power of NAR is unparalleled!

But… why does that language appear in the section entitled, Protecting the Taxpayer: “No More Too Big to Fail”? And wait just one minute… the context is really funky. Here’s the full section:

For more than a century, the U.S. was the world leader in financial services. The visionary management of capital was the lifeblood of the entire economy. By giving responsible access to credit, it helped small businesses grow, created jobs, and made Americans the best-housed people in history. By funding innovation, financial services underwrote our future. Then came the financial collapse of 2008 and a critical reassessment of the role and condition of financial institutions – most of which, it must be said, were responsible and healthy, especially those closest to their investors and borrowers.

In cases of malfeasance or other criminal behavior, the full force of the law should be used. But in all cases, this rule must apply: No financial institution is too big to fail. The taxpayers must never again be on the hook for the losses of Fannie Mae and Freddie Mac. The public must never again be left holding the bag for Wall Street giants, which is why we decry the current Administration’s record of over-regulation and selective intervention, which has already frozen investment and job creation and threatens to make financial institutions the coddled wards of government.

A far better approach – protecting consumers and taxpayers alike – is institutional transparency. Banks need to know that they could be at risk, and investors need clear rules that are not subject to political meddling. The same holds true for the equity market regulated by the Securities and Exchange Commission. We propose reasonable federal oversight of financial institutions, practical safeguards for consumers, and – what is crucial for this country’s economic rebound – sound spending, tax, and regulatory policies that will allow those institutions to once again become the builders of the next American century. We strongly support tax reform; in the event we do not achieve this, we must preserve the mortgage interest deduction.

Maybe it’s just me, but that doesn’t sound quite so like a ringing endorsement of the mortgage interest deduction as much as it seems like an afterthought just stuck on the tail end of a section where it doesn’t fit. The rest of the section rails against bailouts, rails against Wall Street, and talks about institutional transparency. And then… mortgage interest deduction! Why not just stick it on the end of the section on space policy, in terms of relevance? It fits just as well:

Today, America’s leadership in space is challenged by countries eager to emulate – and surpass – NASA’s accomplishments. To preserve our national security interests and foster innovation and competitiveness, we must sustain our preeminence in space, launching more science missions, guaranteeing unfettered access, and maintaining a source of high-value American jobs. We strongly support tax reform; in the event we do not achieve this, we must preserve the mortgage interest deduction.

See what I mean?

Token Analysis: Please See Your Government Affairs Director for Details

Here’s my token, surface take on both parties platforms.

First, to those who think that the national platform doesn’t matter… I disagree. The platform may not matter to the rest of us, but it does matter to the intra-party struggle for control between various factions of activists. This blogpost talks about why and how the Platforms are important:

Stephen Engel, a political science professor at Bates College in Lewiston, Maine, notes in a 2007 paper presented at the Midwest Political Science Association that:

Evidence … suggest[s] that platforms may have some effect on altering the terms of the political universe following an election. As such, understanding how one intra-party faction acquires more power within a party to control a platform becomes increasingly important if we are to understand more fully how ideological change of American parties occurs. We see the need to be more attuned to interest group interaction with the party, and particularly to how this interaction both shapes the content of platforms and signals policy commitment and politician accountability down the line.

In non-academic speak, Engel’s saying that a political party platform is a tool that interest groups try to wield. And some wield it mightily.

Engel points out that between 1976 and 1980, Republican Party positions shifted ideologically to the right. In 1980, for example, the GOP platform dropped prior support for the Equal Rights Amendment and showed more support for positions held by those opposing abortion.

To me, the platform suggests which wing of the party is in ascendancy within the party, and that in turn suggests that once elected, the officials of that party will listen more closely to the activists then in power. The GOP Platform, for example, strongly suggests that the Tea Party is really quite powerful within the GOP; chances are, after November, Republican officials would find that they are going to have to toe the Tea Party line quite a bit. Whether that’s a good or a bad thing is up to you.

Second, given the language of the platforms of both parties taken as a whole, as well as the overall themes that emerge, I don’t see how anyone could think the mortgage interest deduction survives for much longer.

The problematic status of the language in the GOP Platform has been discussed above. But fact is, even if we ignore the odd placement of that clause, the actual way the thing is written is fantastical. IF-THEN statements in politics may as well be non-statements. “We strongly support tax reform; in the event we do not achieve this, we must preserve the mortgage interest deduction” does not say to me that the GOP supports the mortgage interest deduction. It says the GOP supports tax reform, which will include eliminating the mortgage interest deduction… but in case they fail, they’ll settle for the status quo.

To me, this is like your wife saying to you, “Look, I really want to date other guys, but in the event I can’t find anyone else, I’m totally committed to you, baby.” Um, yeah. Prepare for divorce, I say. What she said means exactly the opposite of commitment.

The Democrats, to their credit (?), don’t even bother to express support for the mortgage interest deduction. They’re all about preventing foreclosures and punishing banks, apparently. But all that “pay your fair share” business doesn’t exactly bode well for a tax deduction that largely benefits the upper income taxpayer, does it?

Well, you need to see someone actually paid to render these kinds of opinions: your friendly neighborhood Government Affairs Director.

But my take: at least prepare contingency plans for a world without MID, without Fannie/Freddie, without the FHA-as-the-norm.

-rsh

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Rob Hahn
Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.