The Washington Post Calls for Unaffordable Housing

Dean Baker reports:

Back in the old days we used to think that one of goal of housing policy was to make it possible for young people to buy homes. The Washington Post thinks otherwise. It wants the government to intervene in the housing market, but only if its intervention will ensure that house prices remain unaffordable.

I'm serious; this one is not an April Fool's joke. The Post says that it would support government intervention to help homeowners' facing foreclosure, but only if the proposal will "stem the decline in home prices."

The Post, in keeping with a longstanding tradition, gets the logic 180 degrees backwards. It makes sense for the government to intervene in depressed markets like Detroit and Cleveland, where there is little room for prices to fall. It would make no sense to intervene in bubble-inflated markets like Los Angeles, San Diego, or Boston, where prices are falling rapidly.

Keeping people in over-priced homes would just cause them to pay too much for housing. Suppose the ratio of the house price to the annual rent is 20 to 1, or higher, which is the case in the bubble-inflated markets. If we start with a 7 percent mortgage, add in 1 percent of the sales price for property tax, and another 1 percent for maintenance and insurance, we have owners paying 9 percent of the house price in markets where renters would pay less than 5 percent. In other words, they would be paying 80 percent more for housing than is necessary.

Furthermore, they would never accumulate any equity since the prices will be dropping as the bubble continues to deflate. . In these markets, the government would have to make good on the mortgage guarantees that are central to the plan, potentially costing the taxpayers tens of billions of dollars.

Another great one from Dean Baker.