Bailout or Handout?

Government should not screw up the real estate correction

You can tell the feds are bailing out mortgage lenders by the way no one wants to call it a bailout.

President George Bush made that clear last week when he announced his plan to rescue broke borrowers. "A federal bailout of lenders would only encourage a recurrence of the problem," Bush explained.

So this is not a bailout, you see, because it is for the borrowers, not the lenders. And if you believe that, then you'll also believe that the Federal Reserve has been shoving money at the banks by the billions in recent weeks in order to help borrowers, too.

In truth, what Bush has proposed is far worse than a bailout. Federal regulators and policies would supplant market discipline and price signals in the mortgage market. And all because a long-overdue correction in the domestic mortgage-making sector manifested itself this summer.

What is happening with real estate lending now is not unlike the dot-com bust. America survived that bubble. Then, as now, actual income-production became secondary to complicated financial constructs which obscured the underlying business. If there ever was a business. Recall that Enron invented entire energy-trading markets that ultimately dealt in nothing.

The mortgage industry is not quite that far along, but it is close. Although securitization of mortgages has overall been a great boon to both borrowers and lenders, spreading risk and allowing many more mortgages to be issued than otherwise be the case, it has also brought the derivative frenzy and the obsession with yield that has landed us in correction mode.

The very move into the subprime market—make that a stampede—was predicated on the notion that the added risk could spread thinly enough not to matter while collecting the massive bonus of substantially higher interest rate income streams. Those streams could then be further bought and sold, adding yet more margin to the endeavor.

And this worked, to some extent. Countless subprime borrowers got loans and homes and are not now facing foreclosure. This inconvenient bit of information has to be forgotten in the rush to condemn the "excesses" of subprime leading. Still, somewhere along the way, the vital link between a borrower who is making monthly payments and all the wheeling and dealing in securities was broken. Without those payments, you do not have mortgage to buy, sell, or trade. With dot-coms, it was the lack of income-producing products that triggered the correction. In past few weeks lenders—and traders downstream dealing in mortgage derived instruments—have rediscovered that is really does matter who you lend your money to, assuming you want any of it back.

There is another aspect of the current mortgage industry that is often overlooked, and it too is related to income streams. The streams are what lenders want, not the underlying real estate assets. In contrast to years past, there is no Dirk Dastardly down at the bank looking to swindle the widow out of the family farm. The banks do not want to own the assets that they themselves took as collateral for their loans—ever.

The correct federal response to this should be, "Too bad. You broke it, you bought it." Let the realtors, bankers, Wall Street sharpies, and—yes—the borrowers fight it out amongst themselves. Somewhere there is a market-clearing price for these assets.

Of course, the uber-nannies in the Bush Administration can't allow that. Instead they have opted to compound the problem by using federal assets to move in on the private mortgage insurance market and otherwise encouraging banks to forgive bad loans.

Worse, the White House intends to make the Federal Housing Administration the Federal Housing Administration by directly assuming responsibility for 80,000 underwater loans. Look for that number to double once Democrats in Congress are finished bidding it up.

In sum, we have the makings of the financial equivalent of Medicare Part D—a massive federal program in the place of a semi-private sector that more or less works. Not perfectly, but it is better than making Washington largely responsible for credit allocation in America.

The frustrating thing is that the White House and Congress are chomping to act, while the Fed's more targeted response to the credit crunch has just begun. By using the discount window to entice healthy banks to take on some of the rot, an immediate lockdown on all credit seems to have been averted. It will take time to digest the bad loans, and real estate prices might dip in some markets going forward as a result. California, for example, has a consensus 10 to 15 percent overvaluation to work through, and that may take a year or two to correct.

But that process will slam to a halt once Uncle Sucker begins assuming bad loans left and right.

reason contributor Jeff Taylor writes from North Carolina.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • ||

    See my previous post in the "This Is What Happens When You Lend Money to Poor People" thread.

  • ||

    My friend lives in Ft. Lauderdale right now and the average income for the city is listed at $40,000 while the average home price is $400,000. He's actually living in a rented condo for half the price the owner is paying for it. The market is really fucked up down there.

  • ||

    Let me expand on what basically is my "Fuck 'em" position.

    Helping the lenders is just corporate welfare. It's the classic scam of helping the favored rich under the guise of helping the poor. Be careful there, the "rich" favored one year may be out of style the next.

    Helping the borrowers is paternalistic and patronizing. It's sendig the message "You're too poor and stupid too take responsibilty for tour own fuckups. Therefore we, the wise and benevolent government will come riding in on our white stallions to rescue you from your own decisions. By the way, while we're hear let's talk about other decisions that you are too stupid, childlike and irresponsibe to make. It's for your own good, you know."

    That people can't see through the BS and recognize things like this are government efforts to increase it's control over EVERYONE'S life frustrates me to no end.

    But then, I don't have a college degree so I'm probably talking out of my ass. But then again, maybe not.

  • ||

    I really should proofread my own crap>

  • Trollaphile||

    Great, I can stop paying my mortgage and get bailed out or part of it forgiven.

  • ||

    Countless subprime borrowers got loans and homes and are not now facing foreclosure.,/i>

    Yeah, and what about all the markets in Baghdad that AREN'T being bombed? That inconvenient nugget of information always gets lost, doesn't it?

  • robc||

    joe,

    I dont use it either, but considering your problems with italics, the preview button is your friend.

  • ||

    joe,

    I dont use it either, but considering your problems with italics, the preview button is your friend.


    The problem seems to be with his left Shift key - as in using it. It's probably sticking or just worn out.

  • Paul||

    See my previous post in the "This Is What Happens When You Lend Money to Poor People" thread.

    Yeah, it ain't just poor people. It's white, middle class folks who just haaaad to have that overpriced home in the hip, walkable neighborhood, and were willing to do anything to get it including but not limited to taking ARM loans, interest only loans (I know I'm gonna get that promotion this year, I'm sure of it), borrowing against a previous house that hadn't been sold yet, etc. etc.

  • dhex||

    That people can't see through the BS and recognize things like this are government efforts to increase it's control over EVERYONE'S life frustrates me to no end.

    i agree with you in spirit except for the animistic stance towards the government.

    it's not a living entity, but more of a mental stance at this point. just a mental stance that can kill, like evil psychics or something.

  • ||

    As a renter, I say screw 'em all. But screw 'em all equally. The market will contract, and folks might just be able to afford homes again.

  • Paul||

    As a renter, I say screw 'em all. But screw 'em all equally. The market will contract, and folks might just be able to afford homes again.

    Word. Wait a couple years and now you just might be able to afford that same house in the hip, walkable neighborhood without taking the fancy loan with hair-gel and tasteful blonde highlights.

  • ||

    Countless subprime borrowers got loans and homes and are not now facing foreclosure.,/i>

    Yeah, and what about all the markets in Baghdad that AREN'T being bombed? That inconvenient nugget of information always gets lost, doesn't it?


    Lets see a small minority of people got to deep in debt and will have to sell their house which in reality they never really owned, never really could afford and probably paid over the value of the home to begin with in the hopes that prices would raise. Wow Joe I can see how this is comparable to the occupation of Iraq.

  • ||

    In contrast to years past, there is no Dirk Dastardly down at the bank looking to swindle the widow out of the family farm.

    I always liked Dirk Dastardly and his Canadian cousin Snidely Whiplash.

  • dhex||

    i can see how it's comparable to the occupation of iraq, actually.

    lack of foresight? check.
    poor planning? check.
    lying to oneself? check.
    massive collateral damage to innocent bystanders? check.

  • ||

    dhex

    i agree with you in spirit except for the animistic stance towards the government.?

    I believe you mean "antagonisic". (Unless you interpret our stance as invoking the spirits of trees, rivers, mountains and animals to work against the government.)

    ?Maybe he's talking about URKOBOLD.

  • ||

    The fun thing about this is that there really isn't a crisis...these people loosing their homes are not destitute, they have jobs and have credit ratings high enough to get loans in the hundreds of thousands of dollar range...and the vast majority of whom will simply sell their homes and either go back to renting (and after a few years of penny saving can go back and try again) or downgrade and buy a more affordable home.

  • dhex||

    animistic yes i meant what i said, dear lady.

    That people can't see through the BS and recognize things like this are government efforts to increase it's control over EVERYONE'S life frustrates me to no end.

    animistic interpretation then. the gubmint does not have a will of its own. it is a beast comprised of thousands of men.

    perhaps anthropomorphic would have been more clear except i'm worried the thread would get shit up by furries.

  • Paul||

    , there is no Dirk Dastardly down at the bank looking to swindle the widow out of the family farm.

    That's because there's evidence that the widow of the family farm engaged in serious land speculation in the eighties and then the bottom fell out.

    I remember years ago listening Terri Gross interview a woman on NPR. I don't remember who the woman being interviewed was, but she had written some tug-at-your-heartstrings book about how her family lost their family farm to "Dirk Dastardly". At some point in the interview, the woman let fly that her father had done a bunch of land speculation and questionable investments which caused their financial woes. Terri Gross was so stunned that she did a double-take and with a tone of incredulity confirmed what the woman had just said. The woman responded that it wasn't her father's fault he was a bad business man, and then attempted to recover her lost momentum by changing the subject.

    Whenever someone's losing their home or the proverbial family farm, I want to get the story before their financial woes, not during or after. Only that way can you best judge who's deserving of help and compassion, and who's trainwreck could have been easily avoided.

  • ||

    massive collateral damage to innocent bystanders? check.

    In the case of subprime loans who would that be?

    By the way Dhex when you say "Lack of planning" the truth is the exact opposite for housing. There is an abundance of government planning in regards to housing and the end result is this planning has substantially raised the price of housing in much of the US by constraining the supply of available lots.

    Is it your contention that we need more government planning in regards to housing?

  • ||

    i agree with you in spirit except for the animistic stance towards the government.

    it's not a living entity, but more of a mental stance at this point. just a mental stance that can kill, like evil psychics or something.



    "The Government inudes elected, appointed, and hired people among it's parts. Collectively these people appear to me to have purposes, intentions and desires. I don't wax philosophically but if it looks like a duck ...

  • ||

    it's not a living entity, but more of a mental stance at this point. just a mental stance that can kill, like evil psychics or something.

    From your claims that we need more government land use planning I take it you embrace this mental stance?

  • ||

    "There is an abundance of government planning in regards to housing and the end result is this planning has substantially raised the price of housing in much of the US by constraining the supply of available lots."

    So when the price of housing falls due to abundance of supply, will those low prices also be the work of the gov't planning that raised the price of housing, and ultimately led developers to produce in abundance? Or will it be free market at that point?

  • dbust1||

    Hey, I work for the govt. ease up! We're not all bastards w/ an evil agenda. Some of us are just bastards w/ a low salary, a lot of mandated holidays and hazily-defined-redundant-jobs.

  • ||

    Hey, I work for the govt. ease up! We're not all bastards w/ an evil agenda. Some of us are just bastards w/ a low salary, a lot of mandated holidays and hazily-defined-redundant-jobs.


    True, not all gov't workers are evil, lazy are incompetent. It's just that collectively, the gov't is all three.

  • dhex||

    yes joshua i am a statist thanks for playing.

    no you fucking moron that's not what i'm saying at all.

    i was actually speaking of the people who bit off far more than they could chew, lending-wise.

    i didn't even bother getting into "lying fucking assholes using other people like meat" bits to characterize lenders.

  • ||

    What about the people who were encouraged by the "wise experts" at the mortgage companies to go for the ARM, interest-only, "you can buy more house!" loans?

    I know we say "caveat emptor", but I think at least a tiny bit of responsibility should be attached to those people as well.

  • ||

    At a recent real estate auction in San Diego, foreclosed properties sold at an average price of 67% of what the previous owners paid for them. That's what happens when you leave it to the market place; there is a level at which the assets are marketable.

    It's a good thing for the housing market in the long run, as it drives down the price of housing.

    Jeff is right, let them fight it out.

  • ||

    grumpy realist has a valid point.

    There is not an equivalence between the lender and the borrower. The former has much more knowledge and a sophisticated legal team behind him. The latter has, at best, a local conveyancing lawyer who is interested only in getting the papers signed and collecting his fee, not in analysing the contract and advising his client.

    That being said, there is really no way to protect people from themselves without a completely nannyist system of controls. Such a system would deny more people housing than it "saves" from foreclosure.

  • ||

    But then, I don't have a college degree defacto union certification of intelligence so I'm probably talking out of my ass.

    You're doing fine, J sub D. I agree with your points. Don't let the posers who preen about their college education make you think they're smarter than you.

    I got a college degree, and used my framed diploma to roll joints (before I became a Mormon, natch), because that was the highest value use that piece of paper had.

  • ||

    Hey, Prolefeed:

    Could you, please, tell me how to do that thing you do with the line drawn through words? Pretty please?

  • ||

    You put an "s" between the < and > when you want the line to start, then to stop the line, you put a "/s" between the < and >. Of course, don't actually use the quotation marks.

  • ||

    You put an "s" between the < and > when you want the line to start, then to stop the line, you put a "/s" between the < and >. Of course, don't actually use the quotation marks.



    And HTML tag lessons too! Is H&R a great deal or what?

  • dhex||

    my lack of breakdancing skills will haunt me to the grave.

    I know we say "caveat emptor", but I think at least a tiny bit of responsibility should be attached to those people as well.

    yeah they're fucking assholes, and those that committed fraud should be prosecuted thusly. and have their taints withered by THE MIGHTY URKOBOLD.

  • ||

    like this?

    Thanks, guys!

  • ||

    Thanks Lamar

    I'm learning these HTML tags one at a time. So I can tell my boss I'm cyberslacking doing on-the-job training.

    Now, how about links and indent?

  • SIV||

    Hey, I work for the govt. ease up! We're not all bastards w/ an evil agenda. Some of us are just bastards w/ a low salary, a lot of mandated holidays and hazily-defined-redundant-jobs.

    What do you work for the Mexican government?
    US Gov workers are paid substantially more than similar jobs in the private sector.

  • ||

    Now, how about links and indent?

    Here ya go, Arensen. Or here.

  • ||

    Aresen, Sorry.

  • ||

  • ||

    Dammit! This shit is pissing me off. I sold my previous house at the height of the market 'knowing' that the roller coaster would dip someday soon. I pocketed the profit and have been biding my time renting a less than optimal place while waiting for the market to drop to a level that will make upgrading my living conditions bearable.

    Now that Uncle Sugar is getting involved, I may not see that market drop as far, if at all, as necessary for me to move back into a house. Son of a bitch!!

  • ||

    jw

    Thanks

    Kwix

    J.P. Morgan is supposed to have said "I've made millions by selling too soon."

  • Paul||

    So when the price of housing falls due to abundance of supply, will those low prices also be the work of the gov't planning that raised the price of housing, and ultimately led developers to produce in abundance? Or will it be free market at that point?

    Lamar,

    If you can answer that same question in regards to oil companies when someone talks about gas prices, you'll have reached nirvana.

  • Paul||

    Some of us are just bastards w/ a low salary, a lot of mandated holidays and hazily-defined-redundant-jobs.

    Ok, so we know you're not a teacher. What else might you be...

  • ||

    Paul, If government meddling, like restrictive permitting of refineries, causes high gas prices, then the high gas prices should spur more refinery capacity. It doesn't seem to work like that.

  • ||

    i didn't even bother getting into "lying fucking assholes using other people like meat" bits to characterize lenders.

    spoken like a true statist.

  • ||

    Paul, If government meddling, like restrictive permitting of refineries, causes high gas prices, then the high gas prices should spur more refinery capacity. It doesn't seem to work like that.

    Nice that dhex calls me a moron when stupidity like this is flying around.

  • ||

    So when the price of housing falls due to abundance of supply, will those low prices also be the work of the gov't planning that raised the price of housing, and ultimately led developers to produce in abundance? Or will it be free market at that point?

    The high prices have shrunk the market. Look at a supply and demand curve. At higher prices the number of buyers drops.

    By the way lumar this is simple economics and you have to be an idiot to not understand this stuff.

    Also homes have not improved substantially in utility...so in essence people are paying more money in inflation adjusted dollars for getting the same thing they could have gotten for less 10-20 years ago. So no, homes inflated in price without a corresponding increase in utility because of government intervention is not a feature of a free market.

  • Urkobold™||

    ARESEN! BEHOLD THE NESTED BLOCKQUOTE! AH, HA, HA, HA, HA!

  • ||

    "By the way lumar this is simple economics and you have to be an idiot to not understand this stuff."

    My name is Lamar, not Lumar, Joshua Coming. Alright, even I didn't think that was fair.

    I am merely pointing out that free marketers take the credit when prices go down, but blame government meddling when prices go up...even if the inflated prices that are going down are a result of government meddling. I would also point out that houses, at least in the south have gotten larger than 10-20 years ago, while construction quality has gone down and lot size has gotten smaller. I can't blame it all on government meddling, and I can't blame it all on the markets that fueled the real estate boom. It's a mixed bag, at best. I wouldn't call that idiocy, I would call it observation.

  • ||

    I would also point out that houses, at least in the south have gotten larger than 10-20 years ago, while construction quality has gone down and lot size has gotten smaller.

    So it is your position that "the south" has run out of land?

  • ||

    here you go lamar...two reports on price changes one for portland oregon and one from atlanta georgia.

    Note how Portland Or which has smart growth policies has a high rate of price inflation and then note how atlanta which does not have smart growth policies has a low rate of price inflation...

    Note also that both regions (not cities these stats are regional and only use the cities names for reference) have had strong demand....the difference between the two being that Portland has a government mandated constrained supply while Atlanta does not.

    http://www.realtor.org/Research.nsf/files/06GAAtlanta.pdf/$FILE/06GAAtlanta.pdf

    http://www.realtor.org/Research.nsf/files/06ORPortland.pdf/$FILE/06ORPortland.pdf

    If you want to do other comparisons here is a link for all the other regions in the naiton:

    http://www.realtor.org/Research.nsf/pages/MetroHomePriceAnalysisReports?OpenDocument

  • ||

    opps not "all the other regions in the nation"....these reports seem to only to cover major metropolitan regions.

  • anonymous||

    The real estate market is propped up by government intervention in various ways that it benefits current home owners to the detriment of renters (like me).

  • ||

    Full Disclosure: I own a house I purchased eithteen years ago. According to the benchmarks at the time, I could barely afford it. Now rent on a decent one bedroom apartment is twice my mortgage payment. And my house is worth almost five times what I paid for it. I have benifited from government restrictions on the supply of housing, and from subsidies for homeowners.
    I just finished reading an article from AP saying the default rate for subprime buyers is up to 14%. Now if my math is correct, this means 86% of the subprime buyers, who took a risk on themselves, now own a piece of the American Dream. This may be a disaster for the 14%. But not for the 86%

  • ||

    This may be a disaster for the 14%. But not for the 86%

    you should also note that most borrowers do not get sub-prime loans.

    I have benifited from government restrictions on the supply of housing.

    This really is the insidious part of smart growth...in essence it taxes lower income people such as first time home buyers, young families and renters and gives that tax to the more wealthy.

    Claims of preventing sprawl (which really do not pan out as Levine has demonstrated in his book "Zoned Out") do not justify this regressive fleecing of the less wealthy.

  • dhex||

    Nice that dhex calls me a moron when stupidity like this is flying around

    man, you provide the raw material, and i exploit you like a colonial power running rampant in the third world.

    think of this as me building schools and roads and try to tune out the conquest-and-rape bit.

    ps smallpox blankets genocide.

    pps bush is a fucking murderer but it's good to be the king.

    ppps planning doesn't always refer to central planning. sometimes it means you tell a ladyfriend let's go for a nice walk in the park oh crap it's raining and i forgot my umbrella so you rush under a tree and your hands touch and there's that moment where you know something's going to go down but who knows what it is and your eyes lock and the rain fades away and all that remains are the two of you. that heady mixture of delight and fear who moves forward first and yet the minute that motion is reciprocated all those fears are lost in a roaring hush.

    pppps if you have no idea what i'm talking about i won't be very surprised.

    ppppps i'm talkin' about romance.

  • ||

    "So it is your position that "the south" has run out of land?"

    No!! They just cram more houses into a smaller area. I don't know why people go for that, but they do...or did.

    Sure, Portland has less development, but it is also a much smaller metro area, and it has has higher job growth. These are also contributing factors. Also, Atlanta was much higher in subprime mortgages. The study didn't say whether that translated into higher default rates. But it suggests that easy money is helping to further spur development, at least more than in Portland. If I'm not mistaken, Portland is also just flat out wealthier.

    And another difference between Portland and Atlanta: Atlanta has a big water problem festering. Portland doesn't. Say what you will about limiting development, but the water problem has blown up in Atlanta's face before, and it is a problem that isn't going away. As north Florida develops, Atlanta's strategy of litigation isn't going to settle the problem over the next 10 years. The costs of providing water will cause the cost of homeownership to rise even if the houses stay cheaper.

    One final, purely subjective, aside: Atlanta is just gross. Portland is gorgeous. Perhaps there's a premium for that.

  • ||

    Wealthier per capita, that is.

  • ||

    Rather than let the market make the long overdue adjustments; our alleged political leaders want to take over more aspects of our lives. You're right on target when you point out that many of these borrowers should never have been loaned the money to begin with. So now the rest of us are supposed to rescue them from themselves?. Just more evidence of the ever growing nanny state.

  • ||

    Sure, Portland has less development, but it is also a much smaller metro area,

    Irrelevant.

    and it has has higher job growth.

    Portland has a 4.0% job growth and Atlanta has a 3.5% job growth....This would not explain average home prices of 242,000 for Portland and 166,900 for Atlanta.

    These are also contributing factors. Also, Atlanta was much higher in subprime mortgages.

    This would imply a higher demand for homes in Atlanta then in Portland.

    The study didn't say whether that translated into higher default rates. But it suggests that easy money is helping to further spur development, at least more than in Portland.

    Again this supports my argument in Atlanta there is more development therefor enough supply to meet demand keeping prices down. If developers can sell homes in portland for $260,000 why is there not more development?

    If I'm not mistaken, Portland is also just flat out wealthier.

    Portland is 35,399 per capita income, Atlanta is 35,361 per capita. Read the reports.

    And another difference between Portland and Atlanta: Atlanta has a big water problem festering. Portland doesn't.

    Portland also has a water problem as well as a storm sewer problem.

    Say what you will about limiting development, but the water problem has blown up in Atlanta's face before, and it is a problem that isn't going away.

    This is off topic but is it your impression that the water in Atlanta (or Portland) is under private control or is it publicly controlled along with publicly controlled water prices which do not signal the need in the market to conserve with higher prices?

    As north Florida develops, Atlanta's strategy of litigation isn't going to settle the problem over the next 10 years. The costs of providing water will cause the cost of homeownership to rise even if the houses stay cheaper.

    Portland has expensive utilities as well.

    One final, purely subjective, aside: Atlanta is just gross. Portland is gorgeous. Perhaps there's a premium for that.

    After living there for five years I do think Portland is pretty....for about 5 months of the year...the rest of the year is wet cold and dark....in terms of weather related depression and suicide it has similar numbers to Seattle and Helsinki.
    The many many strip bars do help for the other 7 months but do you really think those are the reason for $260,000 homes?

  • ||

    fuckme!

  • ||

    "The latter has, at best, a local conveyancing lawyer who is interested only in getting the papers signed and collecting his fee, not in analysing the contract and advising his client."

    A good transactional lawyer explains every detail of the contract and its ramifications. The property's value/price is not a legal question (provided both parties know the price and agree). Often it would be unethical for a lawyer to advise his or her client on the price due to lack of expertise.

  • Russ 2000||

    I am merely pointing out that free marketers take the credit when prices go down, but blame government meddling when prices go up...

    Can you give evidence of any good or service where prices went down when a middleman was added to the supply chain?

  • dhex||

    fuckme!

    not on your life, chief.

  • ||

    I see your problem, Corning. You're trying to find an explanation that explains the whole thing in one tidy little package. Unfortunately, the world doesn't work like that. For example:

    "Portland has a 4.0% job growth and Atlanta has a 3.5% job growth....This would not explain average home prices of 242,000 for Portland and 166,900 for Atlanta."

    First, it is most certainly relevant that Portland is a smaller metro area. Your lack of explanation why you think an area's size is irrelevant to the development of that area is telling. Governments are smaller, debt offerings are more expensive, infrastructure is delayed, etc. Capital and resources (not to mention developers, materials and labor, labor, labor) are more available in a major metro area. Then, of course, you are ignoring population density (GA has 141/Sq.Mile, OR has 35/Sq.Mile). Irrelevant? Or statistics that add value to property and create demand for an area?

    Second, I didn't say that the higher job growth in Portland was a complete explanation. I said it was a contributing factor, and it clearly is.

    "Also, Atlanta was much higher in subprime mortgages. This would imply a higher demand for homes in Atlanta then in Portland."

    WTF are you talking about? It could also imply more poor people.

    Let's also not forget who pays to build the roads, water pipes, T&D systems and sanitation that make the far out inexpensive suburbs and exurbs possible. Most of those costs are spread out via taxes or utility rates (though some are localized via impact fees).

    There are too many factors contributing to an area's real estate market to say government meddling is a determining factor. People will pay obscene amounts of $ in NYC for an 800 foot room with a shitter in the hallway and you can't pin it all on gov't meddling. There are demand dynamics that you simply aren't accounting for.

  • ||

    fuckme!

    not on your life, chief.


    Hey dhex why don't you pile criticism on me again because i said bad things about your hero FDR. That is always good for a laugh

    Or better yet go fuck yourself.

    First, it is most certainly relevant that Portland is a smaller metro area. Your lack of explanation why you think an area's size is irrelevant to the development of that area is telling. Governments are smaller, debt offerings are more expensive, infrastructure is delayed, etc. Capital and resources (not to mention developers, materials and labor, labor, labor) are more available in a major metro area.

    Lamar if this was true then why are homes in smaller communities generally less expensive then larger metropolitan ones? Your hypothesis does not fit the the real world.

    The rest of your analysis is even of worse.

    States and local governments that embrace smart growth have inflated home prices for homes when compared to similar homes in areas with similar growth demand that do not have smart growth across the board. I have demonstrated this with the from the top of my head comparison of Portland and Atlanta. A Dallas fort worth vs Seattle comparison would show the same trend...high demand in both areas yet higher inflated prices in smart growth Seattle then Dallas. In fact I dare you to find a comparison that does not show this trend. You will not find it because it does not exist.

  • ||

    Wow, keep comparing traditionally cheap southern cities to traditionally more expensive northern cities. Newsflash: Government regulation makes NYC more expensive than Miami.

    Jeeez.

    Despite higher housing costs, Portland's foreclosure rate is lower than the national average and lower than dumbgrowth areas like Atlanta. When you can compare an apple to an apple, let me know. Until then, I think it's pretty obvious why a city with land as far as the eye can see is cheaper than a smaller city with the same level of demand.

    I'll concede right now: I can't find a small city with housing demand similar to a large city where the small city is cheaper. Smart growth or dumbgrowth, the smaller city is smaller and by definition has less supply trying to feed the same demand.

  • ||

    Smart growth or dumbgrowth, the smaller city is smaller and by definition has less supply trying to feed the same demand.

    Same rate of demand not same demand....there are not the same number of people looking for homes in Portland as people are looking in Atlanta.

    But I do like how you run around trying to invent problems in markets you do not have the first clue as to how they work.

    By the way it was you who brought up the south vs everyone else comparison...If you want to compare latitudes (weird really. I could have used a California city to compare to Atlanta and it would have shown the same thing...smart growth California is far more expensive then Georgia) try an Ohio region with Portland...same thing happens.

  • ||

    Damn, corning got pwned.

    Reduced to noting the greater demand in a larger market and pretending there isn't also a larger supply.

  • ||

    Fine, Corning. Comparing totally dissimilar markets is now valid and you are correct. People move to Ohio for the same reasons that they move to Portland. I think you have a kernal of truth in your argument: smart growth policies make people want to move to those areas while simultaneously limiting supply. But it doesn't explain the discrepancy in housing values. It probably explains 1/3 or 1/2, and I'm just making those numbers up, because comparing cities of different regions is so fraught with variables that it would take two years to factor out all of them.

    Charlotte County Florida is a small community that has restrictive zoning (not smart growth, but a restrictive plan for other nefarious reasons having to do with control of utilities) and yet the housing there is cheap.

  • pölitic||

    A public discussion needs to develop about the cost and benefits for society that result from government creating a set of perverse incentives for consumers. The economic muck that results requires government to intervene in order to rectify the situation. People need a place to live and I think government can provide a bare minimum, but people do not have a right to a standard of living beyond their means. When Bernanke spoke about the crisis he mentioned the Feds role in the overall economy but also said alleviating individual consumers poor decisions is not his role. Wall Street analysts immediately focused on his concern about the economy and confidently assured listeners he would cut interest rates. Was this overwhelming confidence due to secret knowledge, self-interested delusion, or an attempt to create momentum that will influence Bernanke's decision in lieu of public and corporate expectations. http://beatnik2point0.blogspot.com/

  • ||

    I tell you what, Corning. Show us all where this magical free market exists without government infterference and maybe we'll talk. Until then you're just cherry picking to make a point. The sad part is that it's a point I tend to agree with. You're doing an excellent job of showing me that smartgrowth might just work, despite my misgivings.

  • pölitic||

    Portland is a beautiful city, and if winter increases the suicide rate I doubt it is higher than the murder rate difference. Smart growth is not inherently smart, but if it is smart it makes a place more pleasant as well as productive. Old buildings may be replaced earlier than necessary when demand for more modern housing exists. I was in Portland this summer and a few discussions did suggest a significant awareness with the smart growth limitations on sprawl, both as a limitation on housing opportunities and with a pride suggestive of a Portland progressiveness.

    Question: does the Oregon tax structure have an effect?

  • ||

    The sub-prime mess was not caused by greedy bankers (why would a greedy banker lend money to someone who can't pay it back?). It was caused by our friends in Congress. Google the "Community Reinvestment Act of 1977." When it was "strengthened" by Bill Clinton (and Congress) in 1995, it made today's "crisis" inevitable. The answer to a problem caused by government meddling is NOT more government meddling. This mess is going to have a huge negative impact on the economy, and shuffling deck chairs on the Titanic (i.e., taking money from Person A to pay the bills of Person B) will not avert the disaster.

  • ||

    Russ 2000 said:
    Can you give evidence of any good or service where prices went down when a middleman was added to the supply chain?

    Uh, Russ, the price of EVERY good and service goes down when middlemen are in the supply chain. If you doubt me, then the next time you want a Hershey bar, drive to Pennsylvania and buy one from the factory. Let me know how much you saved by cutting out the middleman.

  • ||

    and with a pride suggestive of a Portland progressiveness.

    Tell that to the black underclass being pushed out in droves.

  • ||

    Reduced to noting the greater demand in a larger market and pretending there isn't also a larger supply.

    Oh really joe?

    What are prices like in LA? You know the largest city in the country.

  • ||

    Charlotte County Florida is a small community that has restrictive zoning (not smart growth, but a restrictive plan for other nefarious reasons having to do with control of utilities) and yet the housing there is cheap.

    You have to show that it has a large demand....i used Portland and Atlanta because they have similar rates of demand.

    Until then you're just cherry picking to make a point.

    How is comparing any smart growth region with a any other region with similar rate of demand cherry picking?

  • ||

    Question: does the Oregon tax structure have an effect?

    No. Vancouver Washington which is just across the Columbia river from Portland has the same affordable housing problem. (Don't get exited Washington and Oregon are both heavy into smart growth) Oregon has an income tax structure and Washington has a sales tax structure. I also think Washington has higher real estate sales excise tax then Oregon.

    Hmm that just gave me an idea....

  • ||

    "What are prices like in LA? You know the largest city in the country."

    Factually incorrect, if you're talking about population, population density or area.

    Demand has generally been high in Charlotte County. I point out this small community to highlight the folly of your one-size-fits-all theory. People don't move to Port Charlotte because of jobs or because it's vibrant. There move there because it's cheap. The point is that cities are not fungible nor easily compared. When you compare Atlanta to Portland, that's cherry picking.

    If you can compare two similar cities, geographically similar, demographically similar and economically similar, you might be able to make a point. I'm not holding my breath. As I said, valid comparisons require you to factor out certain variables, which you seem to want to ignore.

    "How is comparing any smart growth region with a any other region with similar rate of demand cherry picking?"

    There is a huge difference in how the market reacts to certain types of demand. In Florida, where many retirees relocate, a surge in housing prices drove them to Arizona or elsewhere. The market in industrial cities is different than in commercial cities which is also different from tech cities.

  • ||

    There is a huge difference in how the market reacts to certain types of demand.

    Can one say you are demand centric?

    Funny how it is impossible to pin down demand yet supply somehow is assumed to be equal in all markets.

    This reminds me of people who believe in ghosts. Anytime you use any sort of scientific method (such as controls) to study the phenomena you are instantly rebuffed by claims that always somehow make the phenomena impossible to examinable. Like magic.

    If only we could pin down those mythical housing elves that trick any attempt look at the supply side of housing. But like you said:

    If you can compare two similar cities, geographically similar, demographically similar and economically similar, you might be able to make a point. I'm not holding my breath.

    You will belch at any evidence that might hint that supply effects housing markets.

  • ||

    "Can one say you are demand centric?"

    I'm just adjusting to Central Florida after 8 years in NYC. People who move to NYC will move there despite the housing market. Many people moving to Florida come because of the housing market. It's less of a factor in some areas.

    "You will belch at any evidence that might hint that supply effects housing markets"

    Au contraire. I assume that limiting supply affects housing markets. I just see it as a piece of a much bigger, much more dynamic puzzle.

  • ||

    I think you have a kernal of truth in your argument: smart growth policies make people want to move to those areas while simultaneously limiting supply. But it doesn't explain the discrepancy in housing values.

    Well looky here...This pretty much explains it. You are perfectly willing to use the power of the state to lessen the opportunity, tax, and limit the liberties of the less well off to the benefit of the more well off.

    Congratulations Lamar you just demonstrated the moral bankruptcy of the left.

  • ||

    "you are perfectly willing to use the power of the state to lessen the opportunity, tax, and limit the liberties of the less well off to the benefit of the more well off."

    Huh? (1) You make a thin case that government meddling is solely responsible for the behavior of complex markets. (2) You argue against the one part of your own argument that I agree with (smart growth affects housing markets). (3) You claim my sentence where I partially agree with you highlights the moral bankruptcy of the left, as if it wasn't part of your own argument to start with.

    You are a fascinating, bizarre little creature, Joshua Corning.

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement