Ed Glaeser has some very sensible things to say about the housing crisis:
[H]ousing should be more affordable rather than more expensive. We argue that credit subsidies, which artificially inflate prices and encourage over-borrowing, should be gradually reduced rather than increased … The goal of federal policy should be to eliminate the distortions that make housing unaffordable, not to bribe people to borrow and build.
UPDATE: Here’s his Wall Street Journal column on same:
February 4th, 2009 at 2:16 pm
Why stop at housing? Education subsidies make education unafforable. Health care subsidies make health care unaffordable. Retirement subsidies make retirement unafforable.
I totally agree with the idea that we shouldn’t be subsidizing home ownership anymore, but the same logic applies to so many different areas, especially higher education. It is TOTALLY the same dynamic. To. Tall. Y.
February 4th, 2009 at 2:29 pm
Very astute analysis. If he really could convince “the federal government [to] lean against the tendency of many communities to block the construction of affordable homes” he would be a genius.
February 4th, 2009 at 4:26 pm
“Housing should be more affordable rather than more expensive.”
Absolutely. And there’s a quick way to promote more affordable housing while stimulating the economy, without any new government spending.
Since the 1980’s, federal support for low income (affordable) housing has been mostly through tax credits. The federal government makes tax credits available through the states, who allocate them to nonprofits and local housing authorities. They in turn sell the credits to buyers, mostly banks and Freddie Mae & Mac, who put up construction funds and get to apply the credits against their taxes for a couple of decades.
With the collapse of the big banks, the market for tax credits has dried up. If a buyer can be found at all, they’re paying 65¢ on the dollar. Affordable housing projects across America are dying on the vine.
Many of these projects are designed, have zoning and environmental approval, are “shovel ready” in today’s language. They could be breaking ground by Spring.
Remember the big banks that got tens of billions of TARP dollars, no strings attached? Here’s a suggested string. Require them to use some of the billions they already have to buy the tax credits at a reasonable rate (80-90¢ on the dollar was a historical rate). Adjust the tax credits so they can apply them to past or future taxes. Let them count the tax credits against their asset requirements. But get the money back in the economy, rescue those projects (which have already cost the nonprofits many thousands to prepare), put people to work, increase affordable housing.
If you want to protect private housing prices further, reward the projects that house those under 30% or 50% of median income. Their residents aren’t going to be bidding on McMansions at any price.
February 5th, 2009 at 10:24 am
Following up on my comment that education subsidies make education unaffordable, there’s this.
The same forces that drove housing off a cliff are driving students off the same cliff. Only thing is, unlike mortgages, student loans can’t be forgiven in bankruptcy!
I credit Richard for being the only pundit to talk against the various housing subsidies. Will he also take on the student loan and education industries?