Wotka World Wide

Thursday, October 29, 2009

Doubling Down on the Wrong Housing Policy:

For decades, the U.S. government has subsidized homeownership -- via FHA insurance, the mortgage interest deduction, Fannie Mae and Freddie Mac, and many other programs. The resulting overinvestment in residential real estate is a major cause of the current crisis. Yet, in trying to cope with the crisis, Washington is pouring on more housing subsidies, thus deepening the federal commitment to the old strategy and making it harder to move to a new one.

Don't get me wrong: By encouraging thrift, self-reliance and neighborliness, individual homeownership can benefit society. Government support was, therefore, a wise investment. But homeownership is not for everyone -- it can't be. Transient young people don't need or want mortgages and maintenance; ditto the frail elderly. More broadly, there are some people who just can't afford it.

Yet politicians of both parties have pretended otherwise. As of 1993, the homeownership rate was a healthy 64 percent of all households. President Clinton, though, decreed that it should set a new record by the year 2000; he ordered the FHA, Fannie and Freddie, and the rest of the government to make it happen. Clinton hit his goal, only to be topped under the Bush administration's "ownership society," when the rate peaked at 69.2 percent.

As we all know, these gains proved unsustainable: Many unqualified buyers got mortgages and lost their homes when prices, inevitably, came back down to earth. In that sense, excessive support for homeownership actually harmed intended beneficiaries and destroyed neighborhoods.

Read the whole thing. Our government officials never seem to learn from the failed policies of the past. Their solution is just more of the same.


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