Steven Malanga has written a must-read piece in this month’s City Journal Magazine that provides some historical background to the current housing crisis and how it has affected the American economy. Malanga goes back and demonstrates that each and every time the government has gotten involved in attempting to expand home ownership, the economy has suffered badly:
In December, the New York Times published a 5,100-word article charging that the Bush administration’s housing policies had “stoked” the foreclosure crisis-and thus the financial meltdown. By pushing for lax lending standards, encouraging government enterprises to make mortgages more available, and leaning on private lenders to come up with innovative ways to lend to ever more Americans-using “the mighty muscle of the federal government,” as the president himself put it-Bush had lured millions of people into bad mortgages that they ultimately couldn’t afford, the Times said.
Yet almost everything that the Times accused the Bush administration of doing has been pursued many times by earlier administrations, both Democratic and Republican-and often with calamitous results. The Times’s analysis exemplified our collective amnesia about Washington’s repeated attempts to expand homeownership and the disasters they’ve caused. The ideal of homeownership has become so sacrosanct, it seems, that we never learn from these disasters. Instead, we clean them up and then-as if under some strange compulsion-set in motion the mechanisms of the next housing catastrophe.
After detailing each housing collapse and how our lawmakers caused them, Malanga points out that we’re headed down the same road again:
Yet before we’ve even worked our way through this crisis, elected officials and policymakers are busy readying the next. Barney Frank, the Massachusetts congressman who serves as chair of the House Financial Services Committee, has balked at proposals to privatize Fannie Mae and Freddie Mac, which would eliminate their risk to taxpayers and their susceptibility to political machinations. Why? Simple: the government uses them to subsidize the affordable-housing programs that Frank supports. California congressman Joe Baca, head of the Congressional Hispanic Caucus, also opposes reining in affordable housing lending. “We need to keep credit easily accessible to our minority communities,” he asserts. Republicans and Democrats, meanwhile, have scrambled to reignite the housing market through ill-conceived tax credits and renewed federal subsidies for mortgages, including the Obama administration’s mortgage bailout plan, which recalls the New Deal’s HOLC. As Harvard economist and City Journal contributing editor Edward Glaeser has observed, mortgage lenders have finally “recovered their sanity”-only to have government dangling subsidized low interest rates and tax credits in front of them and their potential customers all over again. Behind these efforts is a fundamental misconception among politicians that housing drives the American economy and therefore demands subsidy at virtually any cost.
Changing notions of fairness and equity also cloud policymakers’ minds. Our praiseworthy initial efforts-to eliminate housing discrimination and provide all Americans an equal opportunity to buy a home-were eventually turned on their heads by advocates and politicians, who instead tried to ensure equality of outcomes.
It’s a lengthy article, but well worth your time.
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