There is no single individual or entity that can take the blame for the housing bubble and bust. The cast of characters includes the criminal, the stupid and the naive. There is no question though that one of the main characters in this tragedy is good old Uncle Sam:
[Washington’s] crime: pushing federal policies that favored ever-increasing home ownership, particularly from the mid-1990s on, and thus helping spawn the housing bubble at the center of the devastating meltdown.
The sheer scope of the bipartisan, federal pro-housing undertaking is mind-boggling.
As Jeffrey Miron, a Harvard University economist, noted in testimony this week to the House Financial Services Committee, a list of past and ongoing efforts would include the Federal Housing Administration, Federal Home Loan Banks, Fannie Mae, Freddie Mac, the Community Reinvestment Act, the deductibility of mortgage interest, the tax-favored treatment of capital gains on housing, the HOPE for Homeowners Act and the $8000 homebuyer tax credit.
Then, of course, there are the Federal Reserve’s efforts to bring down mortgage rates.
The federal tax subsidy alone amounts to some $200 billion a year, according to the Tax Policy Center. Put it all together and it’s clear that Uncle Sam created immense incentives for home ownership, from which Wall Street eventually found a way to coin huge profits.
Housing has a distinct advantage over other "goods" produced in the United States. While many other industries have lost out to foreign competitors, U.S. builders don’t have to worry about competing with cheap foreign imports. It has the disadvantage of being an expensive "durable good" however. If Washington wanted to keep the economy growing with housing as an economic engine- they had to promote policies to increase the number of people who could purchase one.
These "every American a homeowner" policies overlooked the fact that there are many Americans who’s personal circumstances do not make them good candidates for home ownership. To keep filling houses with people required a blind eye on the part of regulators- and they seemed to make a point of keeping themselves in the dark. Continue reading Uncle Sam And The Housing Crisis