What are the most pressing issues in housing policy today?
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While a variety of challenges continue to plague our housing markets, foremost being the imbalance between supply and demand, housing policy, as distinct from housing market dynamics, is suffering a more fundamental problem. That problem is a basic confusion, if not outright contradiction, in its objectives. Having tried to be everything to everyone, our nation’s housing policies have all too often worked in conflict. Before we can hope to have effective policies, we need to have clear, consistent and achievable goals.
The central conflict in housing policy is the attempt to simultaneously make housing both affordable and expensive. On one hand housing wealth has occasionally provided a jolt to consumer spending. When families witnessed regular and large gains in the value of their homes, they felt, and were, wealthier. Accordingly they also spent more based upon that wealth, helping to drive the economy. That cycle, however, only worked for so long, and only for those who already owned homes. If you did not own, you risked being left behind. So you stretched to save that down-payment or afford those high monthly payments. So what? Appreciation was going to make everything alright.
While many did make out quite well, those late to the party did not. And even many of those who did experience real appreciation, still had to stretch. Often stretch so far that they were forced to go sacrifice in other areas of their lives. As much as we wish to ignore it, at both the national and the family level, there are always trade-offs.
The reactions of both the current and previous administrations have emphasized this confusion. Efforts have tried to create a false floor under prices or slow their decline. But when cities like San Francisco have median prices that are still almost eight times median incomes, it should be clear that prices are still far out of reach for the typical family. Prices declines should not be avoided, they should be embraced.
The simple truth is that an asset which regularly returns a high investment is one where its supply is increasingly short relative to its demand. If we wish to make housing a good investment, the outcome will always be reducing its affordability.
To begin any rational repair of our broken housing policies, we need to ask several questions. Who are we trying to help? If the answer is the poorest and those most in need, then driving up house prices will only hurt the worst off among us. Will our policies be driven by benefiting the providers or aimed at helping the purported recipients of assistance. Too many of our program dollars simply end up in the pockets of providers.
Without a doubt we need to move urgently toward a private system of mortgage finance, where middle-class incomes are not threaten with tax-financed bailouts of our financial system, but we also need to clear discussion of policy objective. We also need a frank discussion about who truly benefits from our existing policies. With that in mind, I encourage the Commission to look beyond the usual suspects and special interests and approach the conversation with an open mind and a blank slate.
Mark A. Calabria is Director of Financial Regulation Studies at the Cato Institute.
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