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Month October 2008

Talking points on the housing bubble

By Sandy Ikeda Last week I spoke to a standing-room-only crowd of students and faculty about the current economic and financial turmoil.  I shared the podium with three of my colleagues, who range all the way from far to the left of Barack Obama to very, very far to the left of Barack Obama.  Needless to say, they all blamed, to a greater or an even greater degree, “the free market.” Now, I do think it’s possible in principle for wide-spread mal-investments to occur in an unfettered market.  (F.A. Hayek writes about the possibility in his Monetary Theory and the Trade Cycle, which you can read online here.)  But enormous speculative bubbles, of the sort we’ve just witnessed in the housing market, are typically the result of government interventions and policies. So in my talk on this highly complex issue I tried to make three points:  (1) the immediate cause of the financial panic on Wall Street was the housing bubble with its sudden rise in mortgage defaults; (2) the free market, which stands for minimal government and the absence of privilege or discrimination, did not create this bubble; and (3) government (and Fed) policy and pressure did, by undermining lending standards across the board and pushing lending rates artificially low. This blog has already referenced Russell Roberts’s fine collection of blog posts on the problem, and if you’re already familiar with the issues then obviously there will be nothing new here for you.  But I think it might be useful to have a list of “names and dates” that make the above case.  The following is not meant to be exhaustive (e.g., it doesn’t even mention important international factors), but is only an outline of the major legislation and policies relevant to the housing bubble. (Caveat:  My expertise in […]

Sandy Ikeda Guest-Blogging at Market Urbanism

When the New York Sun decided to shut down its press, the biggest loss to the blogosphere was Sanford Ikeda’s Culture of Congestion blog. At the Sun, Sandy blogged about cities, economics, politics, and related subjects. Sandford Ikeda is an Associate Professor of Economics at SUNY Purchase. Professor Ikeda is the author of Dynamics of the Mixed Economy: Toward a Theory of Interventionism, involved with the Katrina Project at the Mercatus Center at George Mason University, and Past President of the Society for the Development of Austrian Economics. Much of Sandy’s work and blog posts has overlapped with Market Urbanism’s topics, and viewpoints. Sandy is also a fellow resident of Brooklyn, and admirer of cities. Naturally, I was very honored and excited that Sandy accepted my offer to publish his posts at Market Urbanism while he explores the many options available to him in the blogging world. I am certain Market Urbanism readers will enjoy Sandy’s contributions.

The Moral Case Against Rent Control

In Market Urbanism’s four part series on rent control, I avoided the topic of the morality of rent control, as I intended to address the economic issues and leave the morality to others. Thankfully, J. Brian Phillips of the Ad Hoc Committee for Property Rights is an expert on the subject. In his blog, he linked to the recent Retail Rent Control post, and took the time to address the moral issue: But the real issue isn’t political. The real issue is moral. A large part of the public sees nothing wrong with forcing others to provide for their wants and desires. And there is a steady stream of politicians all too eager to propose laws to grant them their wishes. They think that their wishes can somehow transform reality, that if they pass a law with the intention of creating affordable widgets, affordable widgets will result. They think that politicians are nothing more than genies who can grant their wish simply by writing a law. It doesn’t work that way. Reality is not malleable to one’s wishes. He makes plenty of good points, so I recommend reading the whole post. He concludes: Each individual has a moral right to live for his own happiness. He has a right to the fruits of his labor. He has a right to pursue his values without intervention from others, so long as he respects their mutual rights. Human beings are not sacrificial animals. Also, here’s another another article on the morality of rent control: Why Rent Control is Immoral by Michael S. Berliner, Ph.D. The morality issue belongs as a prominent part of the rent control discussion, but is seldom heard among all the progressive anti-market rhetoric.

Retail Rent Control

Thanks to Bill Nelson for tipping me off to the article from The Villager (NYC): Retail rent control? A city councilmember planned to introduce a bill this week that will require small businesses and landlords to submit to arbitration in negotiating lease renewals if both parties can’t agree on a fair rent. The far-reaching measure, sought by Upper Manhattan Councilmember Robert Jackson and deemed by some as a form of commercial rent control, would set regulated increases not subject to landlords’ whims. The language of the proposed legislation — which mirrors a similar bill introduced in 1988 that fell one vote short of Council approval — looks to preserve small businesses in the current commercial landscape by prohibiting both short-term lease renewals and “rent gouging by greedy landlords.” According to the measure, lease renewals would be set at a minimum of 10 years unless otherwise agreed upon, and arbitration would only be triggered if either party disputes the law’s set rent-increase rates. Those rates, the proposed plan indicates, allow for no more than a 3 percent rent increase the first year; no more than a 15 percent increase by the last year of the lease over the previous lease; and no more than 3 percent incremental increases each year of the lease. The legislation would be applied on a case-by-case basis to all commercial tenants across the city, including manufacturing businesses, nonprofit organizations, performing arts and theater groups, retail establishments, service businesses and professional medical offices. When asked about the measure’s chances of success, Jackson’s chief of staff, Susan Russell, said she believes “the provisions are reasonable,” but acknowledged the language is subject to tweaking. “I think that this is something that’s worth sitting down at the table and talking about,” she added. Supporters claim that, in the current climate, […]

Market Meltdown and Bailout Videos

Wow! This market is a mess. As a great follow up to his posts at CafeHayek on government’s intervention in the housing market, Russell Roberts discusses the situation and bailout with reason.tv: Also… Here’s the video from an Economics forum discussion at MIT (my Alma mater) on Wednesday: The US Financial Crisis What Happened? What’s Next? And another forum at USC. [HT Richard’s Real Estate and Urban Economics Blog]

Cook County (Chicago) Sheriff Won’t Evict in Foreclosures

Cook Co. sheriff won’t evict in foreclosures from Associated Press Cook County Sheriff Tom Dart says he’s ordered his deputies to stop taking part in evictions of properties that have been foreclosed upon. Dart says the change goes into effect Thursday. He says the decision comes because many of those being evicted are people who’ve been faithfully paying rent and didn’t even know about the foreclosures. Dart says he thinks he’s the first sheriff in a major metropolitan area to stop such evictions during what’s become a major foreclosure crisis around the nation. Dart says the number of mortgage foreclosures in Cook County has skyrocketed this year and that he expects that number to climb much higher. — It’s really tragic that renters who have otherwise valid lease contracts, lose that right because of their landlords’ failure. But, I don’t have the same sympathy for the defaulters themselves. What do you think will result from this move? Will banks stop foreclosing in Chicago without the rule of law on their side? Will defaulters squat?

Glaeser: Let Housing Prices Fall

Ed Glaeser gives three compelling reasons why the government should end their infatuation with high housing prices. (Nonetheless, some of the same politicians speak through the other side of their mouths about promoting housing affordability): Why We Should Let Housing Prices Keep Falling There is a superficial attractiveness to policies that seem to promise an end to falling housing prices, but there are three reasons why these proposals don’t make much sense to me. First, the government has no business trying to make housing less affordable to ordinary Americans. There is no reason to hope that middle-class Americans should pay more for any basic commodity, whether that commodity is coffee or oil or housing. Government should be fighting to reduce supply-side barriers and make housing cheaper, not trying to inflate prices artificially. Second, most of these proposals seem likely to be expensive failures. The government just doesn’t have the tools to rewrite the laws of supply and demand. If the cost of building a home in Las Vegas is $150,000, and there are no restrictions on building, then all the credit policies or bailouts in the world aren’t going to permanently keep prices above $150,000. Finally, these policies all have the common feature of getting the government further entrenched in the operation of the housing market, and this creates all sorts of long-term market problems. I would have thought that recent events at Fannie Mae and Freddie Mac, for example, would have made Americans recognize the costs of having government-sponsored enterprises play mortgage lender to the nation. I would have hoped that the history of public housing would have made us wary about spending huge amounts of tax dollars to get into the business of public property management. The current crisis may imply a need for more federal regulation of […]

Sun Sets on Culture of Congestion

The New York Sun has decided to close up shop. To Market Urbanists, the greatest casualties are Sandy Ikeda’s blog, Culture of Congestion and Ed Glaeser’s articles. Sandy’s work has inspired me to read Jane Jacobs’ books (starting with The Death and Life of Great American Cities), and I plan to post some of my thoughts on what I’ve read so far. If you haven’t already, please check out the archives of Sandy’s and Ed’s writings. Ed Glaeser has begun to write articles for the NY Times’ Economix blog. Hopefully, Culture of Congestion will rise again soon.  I’ll keep you posted. Also, check out: Batesline – Sun sets

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