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 lending, but it does not suggest that the federal government should be subsidizing more borrowing.
We do need action to fix our banking system, but we don’t need quixotic policies aimed at pushing up housing prices. I suspect these policies have some appeal because they seem to help homeowners (like myself) as well as financiers. Still, the government can’t repeal the laws of supply and demand in the housing market. The price decline should remind homeowners, and home buyers, that housing should never be seen as a short-term speculation, but rather as a place to live, and hopefully to enjoy, for the long run.
Many politicians love high housing prices because it allows them a chance to offer “solutions” to the high prices. Unfortunately, those “solutions”, have brought us rent control, public housing, and a whole affordable housing bureaucracy, which have done little to systemically solve the problem. Nonetheless, we don’t hear any of the politicians who champion affordability cheering because of the lower housing prices.
Let’s give a little credit to the housing market for correcting itself, enabling new people to afford homes they couldn’t afford three years ago, and let’s avoid creating more problems (and “solutions”) by artificially re-inflating housing prices. And hey, what about the renters?
