Stupid Republican Mortgage Ideas
Much of the reason our economy is a mess is due to the housing bubble, a period in which too many homes were built — and too many people bought homes they couldn’t afford. Home prices continue their death spiral because a glut of homes remains on the market, leftovers from the bubble as the housing market corrects itself.
So to remedy this, the Republicans keep pushing … tax credits to encourage people to buy more homes.
Economist’s View has a roundup of reactions.
From Tyler Cowen:
I’m not sure I understand the proposal, but here is what the NYT says:
The Senate on Wednesday voted to expand the economic stimulus package with a tax credit for homebuyers of up to $15,000, a provision championed by Republicans as addressing a root cause of the recession. Like Arnold Kling, I wish to shift the economy out of housing, not into it again. I also believe that the supply of homes is relatively elastic right now. The tax credit will subsidize the new buyers without propping up the price of homes. Demand will go up, supply will go up, price will stay more or less on the same trajectory, and banks won’t be any healthier. The subsidy goes to new home buyers and why should we be helping them above all others? Aren’t they relatively wealthy on average? (Not that there’s anything wrong with that.) Aren’t some of them the dreaded “flippers” and speculators for that matter? (Can we really enforce the primary residence requirement?) Do we really want to push people into being less diversified and less geographically mobile in the labor market?
And from Ed Glaeser in the Wall Street Journal:
We are in the ruins of a housing market made worse by subsidized lending. The government has no business egging people on to borrow as much as possible to bet on housing prices. There is plenty of room to criticize the current stimulus plan, but Republicans need to adopt Ronald Reagan or Dwight D. Eisenhower, not Harold Ickes, as their intellectual role model.
It’s possible the only thing that may fix the housing market will be the pain of its correction. Bubbles have to burst eventually. Stimulating housing demand makes no sense, yet Republicans cling to tax cuts as if they are some magical cure-all. They are about the last thing a housing market that remains overpriced and overbuilt needs right now.