Exclusive: HUD Secretary Adrianne Todman on how government 'has to be part of the solution' to U.S. housing crisis

By Aarthi Swaminathan

'We live in a great country with robust market systems, but it's not necessarily taking care of the needs of all Americans when it comes to housing,' housing chief says

As the head of the federal agency charged with tackling the nation's housing needs, Adrianne Todman has a big job.

The acting secretary of the U.S. Department of Housing and Urban Development is at the helm at a time when housing costs have become one of the biggest pain points for Americans, especially younger ones. Many say housing affordability will be the top issue influencing their vote in the presidential election.

Democratic presidential nominee Kamala Harris spoke to that concern in a speech at the Economic Club of Pittsburgh on Wednesday. "We will cut the red tape that stops homes from being built and take on, in addition, corporate landlords who are hiking rental prices," Harris said.

"We will work with builders and developers to construct 3 million new homes and rentals for the middle class, because increasing the housing supply will help drive down the cost of housing," she added. Harris also talked about her proposed $25,000 down-payment assistance grants to help first-time home buyers.

Harris's comments come as housing affordability has reached crisis levels in the U.S. The American housing market has been frozen for the past two years, icing out aspiring homeowners with record-high home prices, bidding wars and scarce inventory.

Homeowners, too, have faced the relentless rise in the cost of owning property, from skyrocketing home-insurance premiums to increasing property taxes.

After a period of elevated rates, falling mortgage rates are finally offering a glimmer of hope to prospective home buyers and to the real-estate industry, but structural challenges remain, including a long period of under-building and restrictive zoning laws that prevent builders from constructing denser housing.

"The home-ownership market in the U.S. suffers from increasing unaffordability," Swiss bank UBS wrote in its annual Global Real Estate Bubble Index Report.

The monthly mortgage payment as a share of a household's income is "well above" that experienced during the peak of the 2006-'07 housing bubble," the bank added.

What's the government doing about all of that?

In an exclusive interview on the sidelines of Climate Week, MarketWatch caught up in person with Todman, who has spent decades in housing-policy circles.

She talked about her view of the federal government's role in addressing how expensive it has become to buy a home, as well as how challenging it has become to maintain a home in the face of recurring natural disasters.

The conversation has been edited for length and clarity.

MarketWatch: Climate change is affecting the cost of home ownership and buying and renting, How did we get here?

Todman: There's a parallel between what's happening with climate change, and what's happening with specifically housing that is affordable.

There were a lot of naysayers when it comes to climate change, people saying it doesn't exist. "It's just hot because it's hot, it's cold because it's cold." And there were also a lot of people who didn't fundamentally understand the role that housing played in a thriving economy.

But over the past several years, you see more people realizing [the impact]. People are saying: "Oh, wait, there are many more hurricanes, and they're more fierce and they're more frequent." And you also have people saying, "My college kid can't find an apartment that he or she can afford."

And so both paths are going parallel and coalescing around [the fact that] we have to invest to make sure we're building for resiliency, but we also need more housing.

We have to build more to bring housing costs down, and do it in a smart way, because we also have all these downstream issues when it comes to hurricanes and tornadoes and flooding, like higher insurance.

Now we also have the opportunity to do something about it, because of funding included in the Inflation Reduction Act.

MarketWatch: What has HUD done to help homeowners facing a lack of insurance coverage? Has there been any effort for the federal government to offer assistance?

Todman: We're doing a couple of different things. We have modernized a program that's called the 203(k) program. When people are purchasing a home and using mortgage insurance, they are also able to get additional funding and get a loan guarantee from HUD to upgrade that home.

Editor's note: The 203(k) program, referred to as a rehab loan, allows homebuyers and owners to refinance a home while completing repairs, or even building an accessory-dwelling unit, with a single loan and a monthly mortgage payment. Borrowers will need to come up with a plan to fix up the home, and include an estimate of costs. HUD increased the amount borrowers can finance under the 203(k) program from $35,000 to $75,000 in July.

Todman: We increased the cap so folks can make investments in their homes, particularly if they purchased a fixer-upper, and they can also invest in some of the resiliency and energy-efficiency elements that we think will bring down the utility costs.

MarketWatch: Some in the real-estate industry have said it can take a long time for certain developers to apply and secure a permit to start construction on a house. Is HUD working to improve that?

Todman: The federal government has a wonderful new program that's called PRO Housing. What it does is it provides millions of dollars to cities, to states, to other localities to make smart rules and really recreate rules so that we can build more efficiently, and we can do it, quite frankly, more quickly.

We provided $85 million just a couple of months ago ... and we will be announcing another $100 million [in grants] over the next couple of months.

And what these funds are intended to do is to create a carrot by way of funding, to incentivize localities to take a hard look at the rules they have in place that are slowing down the creation of new housing, and perhaps even not allowing innovative solutions like modular housing, like ADUs, like 3D printing, to be introduced as part of the housing types that we need.

MarketWatch: Can you speak to how big of an issue housing has become in this election?

Todman: What I can say is, I've been in and around the housing industry for 30 years now. I've never seen this kind of energy.

What we're seeing now is people saying, "Wait, my kids can't afford at home. I'm seeing my housing costs go up because of insurance. Or we have to meet unhoused people that are on the streets."

There's much more of a coalition of folks from any party, no matter who you are, what you look like, what your gender is, what your race is, all coming together and saying, "We need to do something."

And that is not something I've seen throughout my professional journey, that it is being talked about by existing presidents during State of the Union speeches, which is something President Biden did.

To have the president stand there and say, "We have to do something" - we certainly haven't seen this level of intention. And we have not seen that level of intention in terms of housing plans that are being produced by candidates, and not just at the presidential level, but at the state and local level as well.

I am excited that we are here, and it opens up opportunities, not just in innovation, but it opens up federal pocketbooks in terms of how we need to invest in affordable housing.

MarketWatch: What is the state of housing in America, in one sentence, or a paragraph?

Todman: It's complex. It is maturing. And it is, I will say, inspiring. We finally can see some political alignment on something that needed that alignment years and decades ago.

The state of housing right now is complex, because we do have a number of homeowners with extraordinary levels of equity, in billions of dollars, perhaps trillions of dollars, of equity in their homes.

But we also flip the coin, and we see folks who believe that they'll never become homeowners. So it makes it complex. We need to take care of those folks.

It is inspiring, because now, like I said, people really want the government to do something about it. Many people realize the market will not take care of it.

We live in a great country with robust market systems, but it's not necessarily taking care of the needs of all Americans when it comes to housing.

So housing right now is in a complex environment, but I also see a lot of opportunity inside the challenges.

MarketWatch: Other countries have made some big moves in the housing space. Most recently in China, the central bank cut interest rates for current homeowners' existing mortgages. In the U.S., we can't do that as the industry is more market-oriented. Do you think that that will change and the government will become more closely involved in housing policy, because of how unaffordable housing has become in recent years?

Todman: I think that there's a recognition that the government has to be part of the solution here, and we see that because of the affordability issues that the market has not adjusted for.

Even with the interest-rate cut that we saw last week, we still are going to see high [barrier] costs [to] homeownership, because we do have a supply issue. And interest rates will begin to drive demand.

At the end of the day, the role that the government has to play is sitting in the space that [represents] the connective tissue between the demand... and the supply.

And the supply issue is something that could have been prevented had there been more attention to this 15 years ago. But 15 years ago we had a lot of supply - think about all those foreclosed homes - and we've now come 180 degrees from that moment.

-Aarthi Swaminathan

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