Subject Areas


Debt and Taxes

We can't build our way to prosperity

Housing policy: eight fables

(The house of Seven Fables, plus one)

Those people who are having difficulty with their home mortgages because they have lost their jobs deserve temporary help;  as for the others…

The housing crash was a man-made disaster created by politicians who acted on ideology rather than reality.  Government funds given to some delinquent home owners, are being paid for by massive borrowing from future taxpayers.

Political housing policies are made up of weak straw, and the results are similar to the fable of the three pigs.

Fable: Everyone should possess their own home. This is clearly not reasonable. For many people, owing a home is inconvenient or impractical. When maintenance problems arise, renters call the landlord; owners call the plumber and pay for the repairs. Houses have many demands beyond mortgage payments: routine maintenance, yards, garbage collection and utilities. Then there is the problem of buying and selling houses. As is currently all too obvious, home prices can go down as well as up.

Fable: Government is obligated to ensure that every person is provided housing.
The government has neither the resources nor the competence to oversee the housing for three-hundred-million Americans. This is illustrated by the demand that unqualified people be given mortgages—that they cannot repay— to “buy” houses beyond their means. Thereby leaving taxpayers to assumes the financial role of both owners and landlords of other people’s houses. Politicians apparently believe that the government money is free; I guess to politicians it is free.  

Fable: Down payments are an unnecessary burden
The idea that someone who can't save enough money for a down payment can be depended on to make monthly payments is not rational. In a few cases it might work out: but most will not.  As it has been shown, it is not worth placing the country in jeopardy by such a “comprehensive” scheme to help the few who actually benefit. Down payments are one means of determining the credit worthiness of prospective buyers.

Having a reasonable down payment is evidence of both the ability and willingness to accumulate money, and suggests behavior conducive to repaying loans. Down payments also lessen the costs to lenders of failed mortgages. Wouldn’t it have been nice if all our recent failures had been backed up by down payments?

Fable: Interest only loans are a legitimate means of financing a home
People who buy expensive houses and pay interest-only are not interested in creating a home. They are living in the present, not saving for the future. The have little or no “skin in the game” and are gambling on a windfall of rising prices. If they end up “underwater” they deserve no consideration whatsoever.

Fable: We can build ourselves to prosperity with housing
Housing is an important economic activity that produces both jobs and—beloved by politicians— taxes; but building, buying and selling houses cannot sustain our national economy. In fact, in some ways it has a negative effect because it encourages additional imports of materials, tools, appliances and etc. that further increase our indebtedness to foreign nations. The products we export (and housing isn’t one) don’t come close to matching the vast amount we imports we buy. And every unmatched dollar is a dollar of our wealth we are giving away, never to return.

Fable: Homes are a good investment
Homes are not an investment, at least not in the same way as stocks or bonds. Americans have been conditioned to expect the value of a house will continue to increase, and to produce a “profit” when sold. However, as we can now see, this increase is not guaranteed. Additionally, much of the perceived profit has always been the result of inflation making the dollar less valuable. A home is a place for living, not a commercial commodity. Those who ‘churn” houses for gain, should not be allowed the benefits of homeowners.

Fable: Being "underwater" is justification for abandoning your mortgage.
A person who has a mortgage greater than the current value of the house is said to be underwater. Apparently it people think this is ample justification for abandoning the mortgage and letting it go into bankruptcy. However, that is hardly reasonable.
A decrease in the value of your house no more lessens your obligations to repay the loan than having a increase in price would require you to pay more on the mortgage amount. Using the decrease in the value of the house as justification for abandoning your responsibilities is inexcusable.

Fable: Homeowners have suffered great losses.
Not necessarily so, at least not yet. The house has not lost value as a home. The payments are presumably the same and house still has the same degree of comfort, and presumably is still the same value as a home. The monthly payment should be the same; so what's the big problem? If you have not been forced to sell at a loss, you have not lost any actual value.

Road to survival:decrease the power of arbitrary government