As someone who has spent years working in the real estate and construction industry, I can say with certainty that today’s housing market is among the most challenging that I have ever seen. With Virginia housing prices skyrocketing across the state, first-time homebuyers are struggling to break into the market.
A major reason for this increase in housing prices stems from a severe shortage of available inventory. According to the Virginia Association of Realtors, the state currently faces an estimated shortfall of 187,000 units, with some estimating that figure could increase to 214,000 over the next half decade.
As state lawmakers continue to debate the best path forward for expanding the housing supply, regulators at the federal level have moved to make a key regulatory change that could help get homes built faster and lower mortgage costs for Virginian homebuyers.
The Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency recently proposed a new regulatory framework aimed at reforming how we calculate capital requirements, the amount of capital banks must maintain.
For years, leaders including Federal Reserve Chair Jerome Powell have made it clear that our nation’s banks are already well-capitalized and financially sound. Yet, capital requirements have remained unnecessarily elevated, keeping billions of dollars locked up in reserve.
This new framework finally begins to change that.
Most notably, the rule aims to do away with overly stringent regulatory barriers and reassesses how we calculate risk in efforts to free up additional capital that banks can use to extend credit to a wider range of borrowers. All while preserving the financial resilience banks need to withstand any economic downturn.
This new regulation should provide Virginian home builders with increased access to the capital and financing required to speed up the home construction process. When capital flows more freely, builders can get approved faster for cheaper loans, take on more projects, and better surmount financial challenges that would have previously slowed housing production. The result is a stronger pipeline of new homes and meaningful progress made toward closing the gap that has driven prices out of reach for so many Virginian families.
These changes should also help reduce mortgage costs for homebuyers. Years ago, traditional banks largely stepped back from mortgage lending. This effectively ceded the market to nonbank specialists, leaving borrowers with fewer choices and less competitive rates.
However, this new framework changes that dynamic. By eliminating the overly burdensome requirements that drove banks out of the mortgage market, it reignites fresh competition, drives down rates, and expands the range of products available to borrowers. This will give homebuyers more choices and greater negotiating power than they have had in years.
As a result, this proposal effectively reopens the path for families to attain homeownership and unlock a new way in which they can start to build generational wealth.
Finally, the new rule will help lower the cost of credit closer to that of other developed countries. American banks have been subject to high capital requirements for years, all while peer nations have had significantly lower regulatory commitments. This has created a major difference in the cost of credit, leaving U.S. consumers to pay more for home loans compared to those abroad. This rule will help directly address this inconsistency and make housing more affordable.
Homeownership is one of the most transformative financial decisions a family can make. Thanks to the Federal Reserve, FDIC, and OCC’s newly proposed capital requirements framework, families across Virginia are one step closer towards making it a reality.
William “Cliv” Cranwell II is the vice president and co-founder of Cuzo LLC, a real estate development and consulting company
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