Economics

Ein Volk, Ein Haus, Ein Shiller: We Need to Pay For Deadbeats to Preserve "National Identity"

|

Thought-tormented economists know what's good for you.

Rober Shiller, co-creator of the Case-Shiller housing index, is a wonderfully informed observer of U.S. real estate and is always worth paying some attention to. But he really should be horsewhipped for this column in Los Tiempos de Nueva York, arguing (not persusasively) that subsidized real estate is central to the American "national identity," and concluding (with that more-in-sorrow-than-in-anger tone right-thinking economists always use) that it needs to be maintained:

The best answer isn't found in traditional economics but rather in American culture: a long-standing feeling that owning homes in healthy communities is connected to individual liberties that embody our national identity. Historically, homeownership has been associated with freedom, while renting — often in tenements or mill villages — has been linked to the oppression of a landlord.

Strangely, the event Shiller points to as the foundation of that national identity was actually a clear case of interest-group capture: Depression-era housing and construction support that was designed to minimize damage to the hard-hit building trades. You can argue that it was worth creating the FHA in 1934 or Fannie Mae in 1938 in order to help out contractors and laborers, but this has nothing to do with any claims about the morality of homeownership.

More broadly, Shiller is in that well-accustomed spot for economists who should know better: The dismal science makes one thing clear, but collectivist consensus demands another outcome. So he ends up arguing that we should keep in place the infernal machine of subsidized real estate, but with minor modifications to protect the stupid:

If we choose to keep subsidizing individual homeownership, we must also commit to adding safeguards so that homeowners are less financially vulnerable. Of course, that will require some creative finance.

There's no way around the reality that many Americans are back to renting, and many more will be joining them over the next half-decade, and Shiller rightly makes the case that an increase in the number of renters is not necessarily bad. But his national identity conceit leads him on a detour to far-off Switzerland, which preserves its cuckoo-clock identity despite a very low level of homeownership:

America isn't Switzerland. Our values and habits of thought are very different. Moreover, our homes are largely scattered in vast suburbs, often with distinct features. If many of these homes needed to be converted to rental units, home prices might well drop.

Note that conclusion: The danger of converting more land to rental property in the 'burbs is not that there won't be demand for rental stock, or that many of these areas (in my neck of the woods especially) are overbuilt to begin with. The danger is that rental business might allow house prices to drop a little bit.

The conclusion, in which nothing is concluded:

We need to invent financial institutions that take into account the kinds of communities we want to build. And we need to base this innovation on an approach to economics that captures the richness of human experience — and not on efficient-market economics, which disregards human psychology and assumes that our basic institutions are already perfect.

My response to this (after "What do you mean 'we,' kemo sabe?") is that it is Shiller who assumes our basic institutions are perfect. It's precisely because central planning cannot capture the richness of human experience that the government needs to stop distorting the housing market. Although Shiller understands real estate subsidies are draining, dangerous, and unsustainable, he's politically astute enough to understand there's no way to get rid of them. But with government redoubling its efforts to blow gas into the deflated real estate bag—through the first-time home buyer tax credit, multi-trillion-dollar life support for the GSEs, debased FHA lending standards, and more—he could at least have the decency not to applaud this misbehavior.

The irony is that Shiller is right: Americans like to own stuff. Immigrants still come to America just for the opportunity to own stuff. We like to own stuff even when we have to pay for it ourselves. And a majority of us (still!) understand that ownership implies you have, in fact, paid for the item in question. That's an economic truth HAMP applicants can ignore, but Yale economists really shouldn't.

Other (and kinder) thoughts from Calculated Risk.

NEXT: Raspberry Cliché

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.

  1. Home ownership was very rare before the 1920s and the country seemed to allright. Did we not have a “national identity” before the New Deal?

    1. Was it?

      Maybe in the cities, but pre-1920s the city population was nowhere near a majority of the US. Not sure what percent of people in the rural areas were renting – probably higher than today but not high enough that I would call ownership “very rare”.

      1. Rates were certainly lower, but more like medium rare.

        http://www.census.gov/hhes/www…..owner.html

        1. Same link I was quoting from. 🙂

        2. I wouldnt call high 40s medium rare. Seems like medium to me.

          1. OK, it was rare for the middle class in urban areas to own houses.

      2. Census numbers agree with me. In 1900, the US HO rate was 46.5% (not rare), it fell to 45.6% by 1920, boomed in the 20s, before crashing in the 30s, hitting a 20th century low of 43.6% in 1940.

        But, looking by state, my state (KY) was above 50% until 1940, falling to 48%. Iowa, even more rural, never fell below 50%. NY, on the other hand didnt break above 40% until 1960. DC didnt break 40% until 2000.

        1. Looks like the mix of rural/manufacturing without any major metropolises has the highest early 20th century rates, states like Indiana and Wisconsin.

          1. That is because small farmers owned their land. Ownership among non farmers was much lower than today.

            1. Duh. That was my point. You claimed home ownership as rare. I pointed out it wasnt for that very reason.

              Actually, lots of small farmers didnt own their land, which is why you see low rates in the deep southern states. Farmers in the midwestern states owned their land.

      3. It isn’t that home ownership was rare but that families lives in rural homes generationally. It was common for grandparents, children and grandchildren to live together.

        1. Not as common as you might think. As the next generation started, they would build a house nearby. My grandparents house was just down the hill from my great-grandparents house. On same farm though.

          1. Same farm is equivalent to what I am speaking of for property registration purposes.

  2. I just read that; I have no idea what his “point” was supposed to be.

    Some sort of whimwham about a “new kind of financial institution” to better represent our national character?

    WTF?

    1. But first, we should rethink the idea of renting, which could be a viable option for many more Americans and needn’t endanger the traditional values of individual liberty and good citizenship….

      We need to consider a gradual transition toward new kinds of housing finance institutions ? entities that may lead us to a different kind of housing,…

      I think what he is advocating is a new type of financial instrument (government controlled?), to encourage, or subsidize apartment complexes.

      Sounds like more of the more of the same central planning and inflationism, just a different “flavor”.

      1. I think he played a little too much Sim City and got carried away and decided to write an editorial.

  3. So “affordable housing” is a bad thing now?

    1. Yeah. Let’s say we keep prices where they are. That means that future generations are going to be stuck paying 50% or more of their disposable income on housing. What good does that do?

    2. You act as if affordable housing and high home prices are mutually exclusive. They’re not, as long as the government lends a helping hand to prospective buyers.

      1. You make it sound so nice, too; it’s “a helping hand” that just happens to be unavailable to you unless you’re in the more wealthy and stable half of the population.

        That’s mathematically the opposite of the effect a “progressive” tax would have, but who cares? It’ll still be popular among “progressives”; nobody said they were any good at math.

        1. “Affordable housing” and “subsidized housing” are two different things. If you advocate for gov’t lending a “helping hand”, it sounds like you’re talking about subsidized, not affordable, housing.

      2. If home prices are artificially inflated by the government, is the government extending you a slightly more favorable loan really helping? You still have to pay off the extra debt. You’re just paying a smidgen less in interest.

        If the government jacked up the price of automobiles by 50% and then tried to make up for it by making interest rates 1% lower, do you think anyone would buy it?

          1. I mean, I wouldn’t, but there are those who would.

  4. If we choose to keep subsidizing individual homeownership, we must also commit to adding safeguards so that homeowners are less financially vulnerable. Of course, that will require some creative finance.

    What it “requires” is teaching some basic concepts, like “If the price of the house is more than five (some people might say three) times what you make in a year, YOU CAN’T AFFORD IT.”

    1. The rule used to be two and a half.

  5. Let’s say we keep prices where they are.

    I don’t have to check my decoder ring to know that the market should determine real estate prices.

  6. “If the price of the house is more than five (some people might say three) times what you make in a year, YOU CAN’T AFFORD IT.”

    While something along those lines is a reasonable rule of thumb, it varies a lot with interest rate. The Dave Ramsey methodology is better, calculate mortgage as percent of take home pay. He says cap it at 25%, YMMV with that number, but the methodology is a better rule of thumb.

    Multiple of annual income is easier to calculate though (and 2.5 if a damn good number for that, not 5). Also, it isnt price of house, it is amount of loan – price of house doesnt matter too much if you can put 100% down.

    1. New homes have gotten much bigger with a lot more amenities over the past few decades. What used to be considered an adequate middle class family home is now practically a cabin. I would hope that with lower availability of credit we will see a return of more basic, low cost homes being built. If the average household in America makes about 50k, it would make sense to have a bunch of 100k-150k homes. That would produce mortgages that people really could afford.

      1. I was hoping this too. I recently got into a PhD program, so I was hoping to buy/build a house (I have ~150k in fairly liquid assets on hand, for various reasons) instead of be paying out the $626 per month for the apartment my fiance and I live in. But I couldn’t for the life of me find a home building company that would build for under $60/sq. ft., because they all insist on granite countertops and stainless steel appliances, and even though Rice U is right across a highway from a very poor area, nothing reasonably safe was available for less than 90k, and that was with a huge amount of redo needed.

    2. The Dave Ramsey methodology is better, calculate mortgage as percent of take home pay. He says cap it at 25%, YMMV with that number, but the methodology is a better rule of thumb.

      + at least 20% down payment & 15 yr loan. 30 yr loans, esp at the front end, are ridiculous wastes of money.

  7. So because home ownership is important to our values, we need to make it possible for people to own homes who don’t share those values and won’t uphold those values, in the process making it more difficult for the people who actually do have those values to achieve their dream of owning homes. Got it.

  8. Cue Chad, Tony, and other idiots who think we need to subsidize every facet of human existence…

    1. We need to subsidize every facet of human existence! For Teh Childrunz!

  9. The only way to guarantee responsible ownership is with a minimum down payment. You will only buy what you can afford with a 20% down payment.

  10. And a majority of us (still!) understand that ownership implies you have, in fact, paid for the item in question.

    IMHO, ownership implies that, barring interfering with the rights of others, I can use said property as I please. Given zoning laws, convenants, conditions, and restrictions, housing associations, and property taxes, there are a lot of people who can tell me what I can do with my property. IMHO, given all that, the idea that you own your house is a joke.

    Right before I lost my house, the air conditioner was going out (in AZ). It would have cost me $200.00 bucks just to have a guy looking at it. I was on the hook for it. Now if I was renting, I’d get to call the landlord and say, “hey, fix this.”

    1. And to me the end of the housing era was signalled when a man was sued after staying nude in his own home. Sued by someone who trespassed on his property.

  11. Ein Volk, Ein Haus, Ein Shiller: We Need to Pay For Deadbeats to Preserve “National Identity”

    Wow, Godwinned in the title …

    1. As the length of any internet thread approaches infinity, the probability of anyone mentioning Godwin approaches 1.

  12. American mortgage institutions encourage people to take a leveraged position in the real estate market, which is quite risky because home prices can and do decline, as we have learned so painfully. Leverage a risky investment 10 to 1 and you can expect trouble

    More gems of wisdom from the dismal science. Let me get this straight, if your mortgage is $1000 a month, and the home’s value taken at the time of the last payment and divided by the number of months spent paying the mortgage is $800, then you need a subsidy of some sort. So, paying $200 a month to live somewhere and owning the property when a loan is paid off is worse than renting? The idea that you should gain income from merely owning a home, through equity, could seemingly have some bad unintentional consequences.

    I’m not saying that income through equity is necessarily a bad thing, but it should be seen a perk of ownership and not a reason to own. If you want to make money invest in stocks or some other commodity. But remember you can’t live in a portfolio.

    1. Leveraging on a mortgage is not in itself “risky”. It’s when you factor in the the increasing amount of consumer debt, in this country, on top of a mortgage, that is needed to keep up with inflation. Investments in stocks and commodities IS risky, and it IS encouraged, along with debt, because savings are useless with a constant “creeping” inflationary monetary policy.

      1. I agree in general but would argue that the stock market, when looked at long term, isn’t as risky as some would say. Of course if you make stupid plays based on the latest craze propped up by the financial media it can be risky indeed.

        What do you think about how people perceive home ownership? Should a home be viewed as we view other things? When people make other big ticket items(cars, appliances, computer, etc)they don’t expect income from those things. The ‘income’ is the ability to put those things to use. Should homes be seen in the same light?

        1. Homes are goods not investments. The land other the home, otoh….

          Leveraging a mortgage, in most cases, isnt nearly as risky as leveraging in the stock market. Stock market fluctuation is much greater, unless, you know, the Case-Shiller index is sitting at 180+.

          Ive suggested before that a wise bank would tie down payment requirements to the local Case-Shiller(indexed for inflation). CS around 100 (for normal, after index) and 20% down probably isnt required, you arent going to get huge price fluctuations. As CS rises, larger downpayments are required. At a CS of 200, somewhere north of 50% would be required. Of course, very few could manage that, which puts downward pressure on the prices, driving the CS lower.

          CS/2 + 10% might be a good formula.

          1. CS/20 + 10%, sorry about that.

            1. Okay, trying again (CS-100)/2+10 was what I was going for. Sigh.

          2. If I’m reading your proposal correctly, it means banks would have a degree of immunity from market volatility, but boom time profits would be minimal. The thing is most banks aren’t wise and wouldn’t be willing to lose the income of the boom cycle to competitors offering no to low down payment loans and mega loans. Even though the good times loans are worthless when prices plummet and you have a buyer’s market because of defaults.

            If I’m wrong, just point me in the right direction, I don’t know to much about this stuff.

            1. You are right, which is why banks wouldnt do this. During the boom they wouldnt find people to loan to. However, during the busts they could sweep up the assets of the failed banks for pennies on the dollar (assuming those assets werent propped up by government bailout).

              Quoting a cheesy econ rap song isnt the best source, but it does explain some things:


              The place you should study isn’t the bust
              It’s the boom that should make you feel leery, that’s the thrust
              Of my theory, the capital structure is key.
              Malinvestments wreck the economy

              1. Also, if risk wasn’t socialized via trillion dollar bailouts loaning institutions would probably be more cautious as you advise, or by some other means.

                It seems to me and, I’m an amateur here, that risk isn’t be incentivized by reward but, rather by the impossibility of failure.

          3. Is that like the half plus seven rule?

            1. Sure. BTW, my Dad violated that rule with my Mom, so I think its silly anyway.
              They were 27/18 when they got married. It will be 50 years this September so didnt work out too bad, at least for me.

  13. When are we going to stop referring to buying 80% or more of an item on credit and paying it off over 30 years as “ownership”?

    1. Ya, seems to me that is just pseudo-renting. Your basically just “renting” from whoever you pay your mortgage to. I guess it’s all in your head and how it makes you “feel.”

      1. Nah. My bank cant sell my house out from under me. I own it. Well, not fully, but I am in a majority equity position.

        There is no doubt that psychologically, things feel different once the mortgage is paid off. But, legallly, I already own my home.

        1. If you stop paying before even the last mortgage payment is sent, the bank can repossess the home, sell it, and pay you whatever’s left after they take their principal back. I guess you can say that it “legally” belongs to you but as long as it’s collateral on the mortgage, it can be taken out from under you unless you pay off the all the principal.

          I agree that as the equity position builds the mortgagor becomes more and more of a true “owner,” but in the meantime you’re just a renter with some fringe benefits like painting the walls whatever color you want.

          1. My previous condo had a lien on it for a business loan. If my business hadnt paid that off they could have seized my condo too. Thats just contractual stuff – I owned the condo. I just agreed to turn over ownership in certain circumstances. Same for a mortgage.

            1. Maybe rent to own would be a better way of looking at it. Same thing though.

              1. No, rent to own is completely different. In rent to own you dont build up equity. Well, you do, but if you dont follow thru on the purchase, you lose it.

                So its not even remotely the same. If I dont pay my mortgage, and get foreclosed on, I still have equity. After the bank auctions off the house, I get the purchase amount above the loan amount. Yeah, for people underwater or with tiny amounts of equity, this is zero, because it wont auction for more than the loan amount, but if you have built up significant equity, it will.

                1. Well, I was more referring to your original post of people looking at buying 80% or more of an item on credit. I’ve never owned a home, but plan on seriously looking into it after I’m done with the military, nor have I ever rented to own anything. So in renting to own, if you don’t follow up on the purchase, you lose all equity, but foreclosing on a home you don’t?(serious question). Even if it loses value like our current situation? I would think you would still lose either way…

                  1. Woops, I guess that wasn’t your comment robc.

                  2. If a mortgagor stops making payments on their debt contract the mortgagee can seize the collateral and sell it. Any money they get from the sale _in excess_ of the principal balance goes back to the mortgagor. If the house has lost value since the mortgage was taken out then obviously the bank will only be able to sell it at a lower price, and thus the excess over principal which is returned to the mortgagor will be less.

                    If the excess of the sale price over the principal balance is less than the amount of any down payment, the mortgagor may lose some or all of that equity. If the mortgagor is totally underwater and owes more than the house is worth, so the bank gets less from the sale than the full principal balance, what happens next is largely a function of what state the loan was made in. In non-recourse states, the bank can only pursue the property used as collateral in the original loan (i.e. the house) and cannot go after borrowers’ other assets and income. In recourse states, they could pursue other debt collection methods.

                    Even with only a sliver of equity the mortgagor bears the full risk of market price declines for the home (and the full reward of any price increases), up until the point where the home’s value crosses the principal balance. After that, additional losses may be borne by the bank in non-recourse states.

                    20% down payments used to provide a significant cushion against price declines for the banks, but the advent of interest-only and negative amortization mortgages did away with that for many loans.

                    1. Cool. Wasn’t aware of the recourse/non recourse thing. It does clear things up a bit.

                    2. Wasn’t aware of the recourse/non recourse thing. It does clear things up a bit.

                      Also, even within recourse states, you can often get the bank to agree to not pursue recourse. Negotiate a “short sale without recourse” or a “deed in lieu of foreclosure”. Both trash your credit, but better than having the bank hound you.

                      Also, CA is a recourse state, but the procedure to pursue the recourse is so time-consuming and expensive that it is effectively a non-recourse state.

                      My banks dont bother for the obvious reason, you cant get blood from a turnip and since after the foreclosure the remaining debt is unsecured, all it does is drive people to bankruptcy.

                      The only time it makes sense to pursue is if they trash the place before foreclosure, which drives the price down even more. In those cases, if I were a bank, I would pursue with vengeance, at least force them to go thru bankruptcy.

                    3. 20% down payments used to provide a significant cushion against price declines for the banks, but the advent of interest-only and negative amortization mortgages did away with that for many loans.

                      Which was the basis of my statement well above about down payment amounts. During a normal situation, 20% provides the bank with plenty of risk coverage. During a boom, however, it isnt enough (as theyve discoved). Instead of raising down payments, they went the other way, competing for more and more questionable loans with the interest only and 125% loans and etc. These work great as long as things are going up, even if the buyer cant make the payments, he can sell out at a nice profit. And as the boom continued, more and more buyers where questionable at higher prices, meaning to keep it going, they needed these questionable products. Like any ponzi scheme, it wasnt going to last.

                      The big loser in this isnt the banks or the people who bought something they couldnt afford. They brought it on themselves. Its the people who could afford the payments, never missed one, but now need to sell and find they cant cause they are 20% underwater. They may have had a 20% down payment, but when prices drop 50%…. Then again, no reason to say they shouldnt have known better too.

                    4. “The big loser ….Its the people who could afford the payments, never missed one, but now need to sell and find they cant cause they are 20% underwater.”

                      The biggest losers are those that didn’t get to buy because they were priced out of the market or they refused to buy because they could see the obvious bubble. So they waited. Having to wait a few years to buy a home because of a bubble is unfortunate, but not necessarily unfair. But, almost having a chance to buy when the bubble burst only to have the government artificially re-inflate the bubble. That’s unfair and cruel.

                    5. Holy shoot. You stated my situation exactly.

                      I shopped around and found a good deal on a home I could afford. I put 20% down too. This wasn’t speculation at all, I needed a home largely for my home business reasons.

                      Now I have to move and would like to sell but it would still be another 50k out of pocket.

                    6. “This wasn’t speculation at all, I needed a home largely for my home business reasons.”

                      Without knowing where you live, I think you were speculating in some sense. Anyone who purchased a home during the bubble was speculating. The reason is that in many places prices had doubled in a few years. Buying at the peak meant you “speculated” that the insane increase in prices was real.

                  3. When you purchase a home using a mortgage, your bank is a lienholder on the property, meaning they have a claim on your property in order to satisfy that amount that you owe them. You are building ownership as you pay out the balance of the loan, but should you at any time stop making payments, the bank has the right to come in and evict you in order to auction off the property. Once the remaining balance owed on the house is paid, you get whatever is left from the auction proceeds. In other words, the bank’s payoff comes before your ownership of the house.

                    Rent to own is a completely different animal, one in which the home is still the property of the seller and you don’t gain an equity ownership stake in any real sense. The fees tend to be terribly high, the fraud likewise, and the main reason people do it is because they can’t qualify for a mortgage. I would avoid it like the plague, because if rent to own is your only option, you’re not ready to own a home financially. Rent with an option to buy if that’s what you want.

                    1. Rent/rent to own was certainly a bad comparison on my part.

                      I wonder which states had a higher rate of home foreclosure: recourse or non recourse, or if it even mattered. Although I would guess it would be non recourse; but I’ll have to look it up.

                    2. Actually, there has been a perverse set of incentives set up in the non-recourse states because — thanks to the Congress bullying FASB into suspending mark-to-market accounting — the banks are being allowed to carry soured mortgage loans on their balance sheets at 100% of the loan’s value. In a non-recourse state if they foreclose on an underwater borrower and sell the home they will have to immediately realize whatever loss arises. For many banks this could even mean insolvency. So, with Congress’s blessing, they are playing “extend and pretend,” allowing homeowners who have stopped paying their mortgages to stay in their homes in the hope that recovery will revive the housing market somehow, and they can keep the plates spinning until then.

                      It’s a classic trading mistake of doubling down on a loser, and it will end in the same way.

                    3. I guess its best to judge public policy by the incentives it creates and the actual results, and not on whether it sounds good.

                    4. I don’t think suspending mark-to-market accounting in March 2009 even sounded good on paper, unless you were a bank with a portfolio of crappy mortgages, or a real estate broker or homeowner hoping to sell into a market with artificially restricted supply like that of fall/winter 2009.

                    5. Oh and don’t forget the current president and the person who came in second place (what was that old dudes name?).

                      They thought it was a good idea also.

        2. How many people right now wouldn’t love for the bank to sell their house from under them and be done with it? The sooner that the people get it through their heads that they are just renting from the banks without the benefits of a landlord, the better off we all will be.

          1. They’re all convinced the real estate market is going to rally back and bail them out. Mr. Market has some more pain to mete out.

          2. That describes most homeowners I know who bought recently. Pretty much everyone who has a mortgage on a condo here is upside down. Worst of both worlds–you have no equity and are pretty much renting from the bank, but you are responsible for the maintainence and repair, property taxes, etc.

            Home ownership = freedom? Not to me. If it takes months to sell your home is a shitty market how does that give you freedom and flexibility?

  14. owning homes in healthy communities is connected to individual liberties

    Two birds, one stone

    1. The ability to keep the property one earns or is legally deeded title to is connected to individual liberties. The desire to have the government confiscate that property and hand it arbitrarily over to someone else is the fundamental OPPOSITE of individual liberty.

      1. I think you missed the “kill” implicit in my comment.

        1. I wasn’t disagreeing with your comment (a smart one), just extending.

  15. What is the moral difference here?

    I rent. I have a neighbor who would like to buy a home. He has some income, but not enough to come up with a 20% downpayment or to pay interest rates that would likely result from a pure market (no GES, FHA and massive Fed MBS buying).

    Scenario 1: My neighbor knocks on my door and demands $8,500 for the downpayment, and that I send him a check every month of about $200-$300 per month to help him pay interest. If I do not, he will take it by force.

    Scenario 2: My neighbor votes for a politician who supports government guarantees for GSE sponsored mortgages, FHA guarantee loans and the FED buying 100s of Billions in Mortgage backed securities, the deductibility of home interest and the home buyer tax credit. These programs cause my taxes to go up (but not my neighbors, because, on net, he is part of the almost 50% of this country who no longer pay pure income tax – he still pays sales taxes and such, but these are not impacted by the policies). If I don’t pay those additional taxes, the government will take my property by force and throw me in jail.

    Cue Chony in 3, 2, 1 …

    1. Only an evil greedotarian wouldn’t care about his neighbors lack of pride in home ownership.

    2. Don’t forget about the loss of purchasing power of your dollar due to the inflationary effect of these subsidized loans.

      Technically, with a fiat money system, the federal government does not need to collect any taxes.

  16. You want people to own lots of homes outright again, Shiller? Put the GSEs and the insolvent banks into bankruptcy and force them to liquidate all their shadow inventory. Housing prices and rents will fall to such low levels that saving for a down payment and making the mortgage payments on a median-priced home will actually be possible for a majority of the country’s wage earners again. What a novel fucking concept!

    Oh no, that would be deflationary, and we can’t turn off the great spigot of credit! Buying shit with our overpriced homes as collateral is an American birthright!

  17. Shiller politely leaves out the social control argument.

    A man with a mortgage is far less likely to be a rebel or revolutionary than a man without one.

    This is also the impolite argument for AFDC, etc.

  18. “But he really should be horsewhipped for this column in Los Tiempos de Nueva York.”

    ?Por qu? Ingl?s Ciudad de nombres traducidos a nombres de ciudades espa?olas, pero el espa?ol nombres no se traducen en Ingl?s?

    1. Yo no se.

  19. “We need to invent financial institutions that take into account the kinds of communities we want to build”

    Can you imagine had Schiller said “We need to invent pantyhouse institutions that take into account the kinds of pantyhouse we want to buy”?

  20. Govt intervention in the mortgage markets, subsidization and promotion of home ownership were behind the build-up of the bubble that burst. Schiller is arguing for re-inflation of the bubble which somehow, someway will once against get out of control and cause another destructive cycle of boom and bust — further driving the national debt to crisis levels.

    This guy Schiller is addicted to fame. He is prescribing a solution for problem that doesn’t exist, yet will keep him and his index in the public eye. Go away quietly Mr. Schiller and let the market do its good work.

  21. The ‘income’ is the ability to put those things to use. Should homes be seen in the same light?

    Exactly; the “utility” value of the house *should* be the number one consideration.

    1. Which is all the more reason to be leery of the ‘sky is falling’ prognostications that call for increased/more/new regulations because OMG!! 16 million Americans have upside down mortgages.

      And it is never pointed out that these homeowners are underwater at this point in time.

      1. Nearly 100% of automobile owners with a loan are underwater…OMFG!!! DO SOMETHING!

        1. Your car is worth thousands less as soon as you drive off the car lot.

  22. If one really wanted to increase home ownership the first thing to do would be to eliminate “growth management” policies. Not fuck with the financial system.

    Money costs what money costs. Making it cheaper to get money to buy homes only makes the homes cost more money.

  23. Wow, that dude is actaully making sense. I mean its logical!

    JHess
    http://www.total-anonymity.us.tc

  24. Whenever someone says that something “cannot capture the richness” of something else, it is a confession of total ignorance.

    1. Sometimes it’s more of an implied admission of arrogance, plus contempt for the intelligence of the listener.

      1. Arrogance is also another way to hide ignorance.

        But either way:

        +1 to the both of you.

        1. “It’s only arrogance if you’re wrong”

    2. I can capture the richness of your post.

  25. The best answer isn’t found in traditional economics but rather in American culture: a long-standing feeling that owning homes in healthy communities is connected to individual liberties that embody our national identity.

    I’d be a lot closer to believing this if our federal, state, and local governments hadn’t spent the last half-century using eminent domain to “buy” older (mortgage free) homes in functioning neighborhoods so they could be bulldozed and replaced with higher-taxed and heavily mortgaged “dwelling units.”

  26. Historically, homeownership has been associated with freedom, while renting ? often in tenements or mill villages ? has been linked to the oppression of a landlord.

    “Oppression of a landlord” can be interpreted in more than one way.

  27. The best answer isn’t found in traditional economics but rather in American culture:

    Because everyone knows that the law of supply and demand is subsidiary to “gimme gimme gimme”!

  28. “In short, this all has a great deal to do with culture, and little to do with financial wisdom.”

  29. I, too, was struck by the non sequitur. Shiller implies, without saying it openly, that home-ownership should be subsidized because it is basic to national identity. But subsidies have to come from somewhere, and unless the Chinese are willing to permanently subsidize US housing, the money has to come from tax revenue. That means that American taxpayers will have less money left to buy the subsidized housing.

    Nor is it obvious to me that subsidized housing will be cheaper: by increasing demand for housing, subsidies also increase prices; so it is only current house-owners who stand to gain from subsidies, if and when they sell.

    OTOH if Shiller wants subsidies for more construction, that might do the trick: a greater housing supply should lead to lower prices, hence more home-ownership.

    1. Yes, yes! Home construction, that’s the ticket! How would you like to be my chief economic adviser?

      1. Thank you, but I must decline, because it’s not sometime I care to put on my c.v.

  30. Shiller’s government intervention criticism re ownership neglects to account for rent control, too big a temptation for the elected but well known destroyer of housing stock.

  31. I seemed to have read a different column than the rest of you. I got the impression that Shiller was advocating for a society with fewer home owners and more renters through government policies that discourage suburban development and instead encourage the creation of rental housing in urban centers. He seems to be an adherent of new urbanism. The examples he cites demonstrate that government encouragement of (and American preference for) home ownership is based on non-rational premises. That is why he points out that Switzerland’s rate of home ownership is lower than in the United States. By doing so he is trying to demonstrate that low home ownership rates do not necessarily equate to a loss of freedom.

  32. I got the impression that Shiller was advocating for a society with fewer home owners and more renters through government policies that discourage suburban development and instead encourage the creation of rental housing in urban centers.

    That’s the problem, right there, Ralph.

  33. I agree. I think he is advocating boneheaded anti-market government policies that seek to restrict consumers choices and distort the housing market in order to arrive at a utopian solution for a non-existent problem. But not the boneheaded anti-market government polices that seek to restrict consumer choices and distort the housing market in order to arrive at a utopian solution for a non-existent problem the rest of you seem to think he is advocating.

  34. The danger of converting more land to rental property in the ‘burbs is not that there won’t be demand for rental stock, or that many of these areas (in my neck of the woods especially) are overbuilt to begin with. The danger is that rental business might allow house prices to drop a little bit.

    The irony is that if we allowed housing prices to drop, then more people could afford to buy homes. Without having to borrow as much money to buy them.

    In other words, this is NOT about homeownership. It’s about mortgages and bank earnings. There’s other no rational explanation for keeping housing prices high AND advocating more home loans.

  35. Wait, let me get this straight: The government needs to artificially prop-up the price of real-estate in my neighborhood, therefore making it impossible for me to buy, so that I can experience “Pride of ownership”?

    I thought the idea of a subsidy was to make things more affordable?

  36. One more thing: If the Government wants to subsidize ownership, why not give a tax break for payments against principle, not just for interest? They’re subsiding the mortgage industry, not ownership.

  37. With many new announcement about the wizard of oz movies in the news, you might want to consider starting to obtain Wizard of Oz books series either as collectible or investment at http://www.RareOzBooks.com.

  38. many Americans are back to renting, and many more will be joining them over the next half-decade, and Shiller rightly makes the case that an increase in the number of renters is not necessarily bad.
    http://destinationsoftwareinc.com

Please to post comments

Comments are closed.