US builders push ‘Trump Homes’ to win backing for a million houses
The effort comes at a time when the cost of buying a home is historically high
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[WASHINGTON] US builders are working on a plan for a massive programme to develop “Trump Homes” that would address the US affordability crisis while allowing private capital to deploy many billions of US dollars.
Lennar and Taylor Morrison Home are among the firms that have worked on the proposal, which calls for builders to sell entry-level homes into a pathway-to-ownership programme funded by private investors, according to people familiar with the plan.
Under one iteration of the plan, the investors would rent out the homes to tenants, whose monthly payments would, after three years, be counted towards a down payment if they wished to purchase the home.
Such a programme would be complicated to implement, one of the people said, and it is possible that it won’t gain enough support to move forward. Even so, it demonstrates builders’ desire to gain the favour – or at a minimum, avoid the ire – of an unusually transactional White House.
The size of the programme would ultimately depend on how many builders decide to participate, though a person involved in the plan said that builders have discussed aiming for as many as one million homes. At that number, the programme would likely deliver more than US$250 billion worth of housing.
The administration is not actively considering the plan, a White House official said, speaking on condition of anonymity.
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The private investors would bear any initial losses, said one of the people, who asked not to be named discussing the proposal. Many details have yet to be determined, including the role that federally-backed mortgages should play. Industry players initially pitched the plan last year to the administration and are continuing to refine the details, the people familiar with the matter said.
“We are encouraged by the thoughtful discussions between home builders and the administration that could help more Americans step into home ownership,” a Taylor Morrison spokesperson said, adding that it’s “too early to understand any details.”
The effort comes at a time when the cost of buying a home is historically high, exacerbated by elevated interest rates and a shortage of homes in places where people want to live. While estimates vary, it’s widely believed that the US needs to add millions of new homes to address the crisis.
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The proposal – which some in the industry are colloquially calling “Trump Homes” – could help meet that demand while giving the president a signature programme – along the lines of TrumpRx, for addressing the cost of prescription medication, or wealth-building Trump Accounts – that he can use to motivate voters in the coming midterm elections.
To that end, Trump has promoted a variety of initiatives, including a plan to drive down mortgage rates by directing Fannie Mae and Freddie Mac to purchase mortgage-backed securities, and a push to ban institutional investors from acquiring single-family rental homes.
The Trump Homes proposal takes a different approach: increasing housing supply through a business model commonly known as rent-to-own. In past iterations, the model has resembled a standard lease that includes an option to buy, allowing families to move into a home they’d like to purchase before they have saved a down payment.
Private market rent-to-own businesses have suffered from common pitfalls, including the quality of property management during the rental period and the low percentage of renters who successfully acquire their homes.
A federally backed rent-to-own programme could offer solutions to those problems by coordinating the efforts of housing market players, including builders, rental companies, banks and government-sponsored entities.
In January, Pretium co-president Stephen Scherr sketched out a framework for a federally-backed rent-to-own programme in an interview with Bloomberg Television.
“Imagine a scenario in which rent is paid; money is held back to provide against a deposit account for a down payment,” said Scherr, whose firm is among the largest owners of single-family rentals. “Imagine where we were to link arms with homebuilders who could build smaller, more affordable homes.”
For its part, Lennar has signalled its readiness to increase production once the market improves for buyers.
“We’re very well positioned to provide the affordable supply that the market needs when demand is ultimately activated by either lower interest rates or government-sponsored programs to enable affordability,” Lennar chief executive officer Stuart Miller said on a conference call with investors in December. BLOOMBERG
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