Affordable Housing

Thomas Sowell, via Carpe Diem:

The current political stampede to stop mortgage foreclosures proceeds as if foreclosures are just something that strikes people like a bolt of lightning from the blue-- and as if the people facing foreclosures are the only people that matter.
What if the foreclosures are not stopped? Will millions of homes just sit empty? Or will new people move into those homes, now selling for lower prices-- prices perhaps more within the means of the new occupants?

The same politicians who have been talking about a need for "affordable housing" for years are now suddenly alarmed that home prices are falling. How can housing become more affordable unless prices fall?

The political meaning of "affordable housing" is housing that is made more affordable by politicians intervening to create government subsidies, rent control or other gimmicks for which politicians can take credit. Affordable housing produced by market forces provides no benefit to politicians and has no attraction for them.

In the wake of the housing debacle in California, more people are buying less expensive homes, making bigger down payments, and staying away from "creative" and risky financing (see chart above). It is amazing how fast people learn when they are not insulated from the consequences of their decisions.

Mark Perry has a graph showing fully twice as many homes were sold in California in January of 2009 than in January of 2008.
  • Thomas Sowell is probably my favorite columnist/economist. I'm currently reading "Black Rednecks and White Liberals," which is pretty interesting.

    I just made the argument you did to a friend of mine who is trying to buy a house. All of these mortgage plans and stimuli are effectively telling him he is not allowed to participate in home ownership. And I hate when people say we're "losing" homes. Can we not find them? Are they going somewhere? Do they implode or something? No! Someone else will buy them. That is, if they're allowed.

  • Josh

    According to what I hear on the news:

    High rates of home ownership = good
    Falling prices of homes = bad

    So lets get all these poor people into houses! But... we must be careful to keep the prices of houses going up uP uP uP!!! WHEEEE!!

  • ArtD0dger

    Pretty good article by Sowell. It does, however, illustrate one of the pitfalls that conservatives and libertarians encounter when trying to get their message out. He is, of course, spot on when he points out that bailing out one set of people in order to keep them in houses comes precisely at the expense of another set who would have the same homes (now “affordable housing”), were prices allowed to fall naturally. But he can’t resist taking little digs at the former group, saying we “indulge” their living “high on the hog,” and referring to their “bad decisions” in the title of the piece.

    This may all be true, but it is the type of rhetoric that fills leftists with outward indignation and inward glee. They will spin this article and cherry-pick quotes to make it sound like Dr. Sowell is a heartless bastard who blames poor victims for their own misfortunes. Worse still, members of the less-engaged public are likely to be receptive to this one-sided depiction.

    In this case, it is abundantly clear that the aid rendered to one unfortunate group that we would like to help comes directly at the expense of another equal-sized and perhaps even more deserving group. This is a general principle of government action, but usually benefits are concentrated and costs are diffused in a manner that obscures the equal (or greater) harm incurred. Better to draw attention to the zero-sum nature of intervention in this teaching moment rather than cast aspersions on the unfortunate and play into the “cold greedy incompassionate market fundamentalist” rhetoric.

  • frankania

    What I don't understand is why the mortgage-holders do not rent the house to it's current occupants. The foreclosure officially makes the house property of the mortgagor (bank, etc.), but rather than stay empty and produce $0.00/month, it could at least produce rent$/month for the bank etc., at least, until they either re-finance the thing or sell the house to someone else.

  • Henry Bowman

    to frankania:

    I don't understand it completely either, especially because a great many homeowners have basically been renting, anyway. For example, in 2005 (the last year for which I have seen stats), 61 per cent of new home buyers in Kalifornia used 'interest-only' loans and did not put any money down. They were renting! They had zero equity; they only had the [plainly incorrect] hope of equity.

    They aren't losing anything except a place to live. The banks could rent to them, but would lose money doing so. But, they would probably lose less than foreclosing.

  • The problem is, many of the houses under foreclosure are not going to be "affordable" for the long term even if they are fully paid off. When you build houses greater than 4,000 square feet and put in just the minimum amount of insulation required by code, you end up with a very high cost of ownership. Here in PA we expect 35 to 65% electricity price increases next year with deregulation. Lots of people will be feeling the pain.

    While we have a housing slowdown, now would be a good time to implement a national energy code - making sure that houses are built properly for the long term.