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June 2023: Just Housing

Just housing

Is it safe to assume you’re a fan of Fair Housing? I am, but I guess it’s important to clarify what that means.

“Fair Housing” refers to the principle that all housing should be available to all persons, regardless of any arbitrary characteristic. It means that no one should be denied access to housing simply because of a distinctive characteristic of that person.

Sounds pretty good, doesn’t it? I’m going to stick my neck out and say I think that’s a fairly broadly-held view.

Unfortunately that’s not always happening in the housing market. And that’s why Fair Housing laws have been enacted and, as of 2020, a new advisory was incorporated into both the California Residential Purchase Agreement and Residential Listing Agreement.

The Fair Housing and Discrimination Advisory (FHDA)

This two-page advisory lists about a half dozen federal and state pieces of legislation identifying protected classes and also explicitly states that discriminating against folks based on belonging to these protected classes is unlawful.

In lockstep with this advisory came the guidance that sellers should no longer review “buyer love letters,” and the Residential Listing Agreement now even defaults to instructing the listing agent not to present such letters to the seller.

Bye-bye Buyer Love Letters. But why?

For those unaware, a “buyer love letter” is a note from a homebuyer to a homeseller, included with their offer, and typically has the goal of pulling some heartstrings to get a better shot at winning the property. It’s generally a more common practice when there are multiple offers on a property and competition is heated.

So why is the practice of sending these letters taboo now? The main concern is that it may lead to “implicit or unconscious bias.” Often these letters reveal protected classes to which the buyer might belong, which in turn may influence whom the seller selects or rejects.

As we just said, people shouldn’t be discriminated against because of any arbitrary characteristics about them, so we should do all we can to eliminate that possibility. After all, justice is blind, right?

I do appreciate the heart behind the FHDA, but in my opinion this fosters a new problem which comes into relief with a simple question: when offers are equal, who do you choose?

Who you can favor

The advising I’ve received is that homesellers should judge buyers according to their “financial qualifications and strengths.” On the one hand, this criteria seems to have some merit. Which buyer is most competent to close the deal with the least risk of defaulting? Probably the one with the most cash sitting in the bank and/or whoever makes the most money.

So under this criteria, who’s at the front of the line for your home?

All-cash offers and those with hefty down payments will always come first. There’s always been some conventional wisdom here. Generally speaking, all-cash offers and offers with large down payments are simpler: if all-cash, there are no hoops to jump through with a lender. If it’s a large down payment, there’s generally less risk for the lender, and therefore also for the seller.

But now who’s at the back of the line?

Those with smaller down payments, which can be folks using a conventional loan, but it’s especially those acquiring an FHA loan, and veterans using VA loans (which are 0% down payment). Technically speaking, on this scale, these folks are the “weaker” homebuyers, and their heads tend to droop when they hear they’re up against an all-cash offer.

The Current Situation

All-cash sales have been on the rise in San Luis Obispo. In the last six months, a little over 2 in 5 home sales in SLO have been all-cash purchases—that’s over 40%. In years past, all-cash sales comprised between 22% and 29% of home sales.

I’d hesitate to say this is due exclusively to the new guidance on buyer love letters, but the new guidance is certainly cementing this mode of discriminating as the acceptable mode. And for clarification, the “weaker” homebuyers are not necessarily being priced out (though that’s happening too, which is a topic for another day). These buyers are being “out-wealthed.”

These buyers may be highly motivated—arguably more so than their wealthier counterparts, because knowing they’re at the bottom of the pile gives them a greater appreciation for an accepted offer—but motivation is a lot harder to read than someone’s bank statement.

Let me say here that I have no issue with wealth—wealth is a good thing!—and neither would I suggest that the most financially powerful should automatically be shuffled to the bottom of the pile.

However I would strongly challenge the idea that fair housing is best achieved by using financial power as the new measuring stick. In fact, I do think it’s creating a new kind of inequality.

Perhaps if we could wave a magic wand and create more housing instantly, that would alleviate the problem—or at least the problem wouldn’t be as pronounced. But when that’s not an option, how do we correct an imbalanced system?

Become a fan of something better for our community

“Fair housing,” insofar as it allows preferential treatment based on income and how big someone’s bank account is, doesn’t go far enough, and the FHDA can’t achieve what I think we’re after.

While I am a fan of truly fair housing, I’m not sure the FHDA and the advising that comes with it is getting us there. I think we need just housing. In a just system, the weak are not overlooked. For justice, at least, includes the concept that the powerful pay attention to the weak among us, so they aren’t always shuttled to the back of the line.

There’s good news here! Just practices naturally produces better, thriving communities.

Ponder the alternative: what might happen to our communities when the first-time homebuyers and other alleged “weaker” buyers, who are integral to our workforce and communities, are out-wealthed from our city limits? I’m doubtful we’d be fostering a flourishing community for the years ahead.

The Tall Order

Selling a home is complex and I appreciate that there are often lots of variables and needs to attend to (that’s part of my job!), but I would suggest that you and I homeowners—and thereby, future homesellers—are the most powerful ones in this equation, as we’re quite literally the key-holders.

If you’ll forgive a reference to the Marvel Comic Spider-Man... As dear old Uncle Ben used to say, “with great power comes great responsibility.”

In all honesty, I don’t know if I have the wisdom or stomach to advance just housing with these considerations in mind—nor do I know precisely what it looks like—but I would suggest that our responsibilities are probably greater than just maximizing our profits and minimizing risk to ourselves, if we hold ourselves at all accountable to flourishing the community which we leave behind.

A tall order this is indeed, but something at least worth talking about and striving for.

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