Brainard calls CRA modernization critical to addressing growing scarcity of affordable housing

Challenges facing low- to moderate-income (LMI) and minority renters and would-be homeowners underscore the importance of getting modernization of anti-redlining laws right, the point person for the Federal Reserve’s efforts on the issue said Tuesday.

In remarks to the National Housing Conference National Advisory Council Meeting, Fed Gov. Lael Brainard said the growing shortage of affordable housing underscores the importance of incentives provided by the Community Reinvestment Act (CRA) for the production and rehabilitation of affordable housing. “With the demand for affordable units significantly exceeding supply, it is essential to strengthen the incentives for these loans and investments as part of CRA modernization,” she said.

She also told the group that increasing access to affordable housing is “critical to creating opportunities for homeownership” for LMI households – and a chance to build wealth through home equity.

“Here too, CRA plays a role, not only in providing incentives for the provision of affordable housing, but also in encouraging access to credit for homeownership for LMI households and communities. Indeed, mortgage lending has long been at the center of evaluating CRA performance,” she said.

On Monday, the Federal Register published the Fed’s recent proposal to modernize the CRA, beginning a 120-day comment period.

Brainard told the group that many households have been unable to purchase a home since the last financial crisis due to “a confluence of factors, including higher home prices and stricter lending standards. For those who have purchased a home, higher home prices have translated into higher debt levels relative to household income.”

She said for renters, available subsidies or programs for affordable housing have fallen short of the need, particularly in higher-cost cities, while new higher-end rental housing has increased significantly since the financial crisis. “The high cost of renting leaves many families paying a higher share of their income for housing. American Community Survey data from 2019 show that 45% of renter households spend more than 30% of their monthly income on rent. While 22%  of renters pay more than half of their income toward rent, this figure jumps to nearly 38% for renters earning below $50,000.

“This leaves families with little to no room to save for emergencies, such as the COVID-19 pandemic,” she said.

The Fed governor said the wealth gap remains stubbornly wide, even with the existing CRA rules. “The Survey of Consumer Finances for 2019 found that the typical White family has eight times the wealth of the typical Black family,” she said. “For many American families, homeownership is the single most important component of their wealth. In 2019, the homeownership rate for Black households was 42.1%, as compared to the 73.3% for White households. This homeownership gap of 31.2% is 3.1 percentage points wider than a decade ago,” she said.

Brainard explained that the Fed’s proposal advances CRA’s core purpose of addressing unequal access to credit for LMI and minority communities and disinvestment in underserved communities.

“A modernized CRA should help move the needle on credit access, wealth building, and the availability of community development financing,” she said. “This includes strengthening the regulations to ensure that a wide range of low-income and minority banking needs are being met. It also includes promoting financial inclusion by proposing incentives for further bank investments in Minority Depository Institutions, Community Development Financial Institutions (CDFIs), and community development activity in designated areas of need outside of assessment areas, such as Indian Country.”

Speech by Governor Brainard on modernizing and strengthening CRA regulations: A conversation with the housing community