Government Makes Housing Less Affordable

Words of wisdom from Patrick:

Every government action designed to make housing more affordable has the effect of driving up prices, making housing LESS affordable.

We need lower prices, not subsidies, guarantees, or great buckets of profits for banks and Fannie Mae.

Fanny Mae buys up and resells conforming mortgages, giving the mortgages an implicit guarantee that the government will cover them in case of default. This increases the amount that banks are willing to lend, which drives up the cost of housing.

The deductibility of mortgage interest increasese the amount that buyers can borrow, and again drives up the cost of housing.

Even housing subsidies don’t help at all, because they are simply eaten by higher prices, making them a direct transfer from taxpayers to sellers.

Every housing program by the government negates its own effectiveness by making housing more expensive. They harm savers, because savers are forced to pay higher prices. They do help banks though, by allowing them to make bigger loans and therefore bigger profits. The best thing the government could do for housing is to stay out of it and let prices come down to affordable levels.

Most municipalities don't want lower housing prices because the real estate tax take would be lower.