Decent discussion on To the Point
So I caught a bit of the radio show To the Point when running an errand today, and it surprised me by being interesting (I've rarely found the debates on the show interesting since it was just Which Way LA, and it was a full hour long). They were discussing the future of Fannie Mae and Freddie Mac, which currently own something like 90% of the mortgages in the US or some such. The economist on the show had a conservative bent, and was remarking that primarily they work to keep interest rates down for mortgages, but that that drives up prices, and in the long run you pay the same with higher interest and cheaper houses. (Perhaps you actually pay more since property taxes and such are based on price valuations) He believed that they should be split up and sold to the private sector with government guarantees on loans having a time limit. The other guest was an economic journalist (the author of The Big Short and other books) and he made a few points. First, that the private sector has not shown itself to be very good at pricing long term risks, and that privatization of risk is fine until the point where you get systemic risk such as the recent crisis where government feels compelled to step in, and consequences of bad bets get nullified. Second, that government has been involved in the housing sector since the great depression, and for much of that time, it has functioned well. Third, that other countries without the stabilizing forces of these institutions have no such thing as the 30 year fixed mortgage which has played such a big role in our country's home real estate market, and what most Americans would say was a positive role.
On the one hand, I would say that there certainly is a great deal of unreality in our housing market, and places like LA have wound up with highly skewed real estate markets. And where things are highly skewed it is usually the result of some incentives doing the skewing. On the other hand a true real estate free for all would be truly scary out here, and even gradual scaling back of incentives can have huge ripple effects as speculators jump to get ahead of the trends. And the balance between commercial and residential markets is particularly difficult in California where Prop 13 makes governments far more reliant on commercial sales tax revenues over residential property tax revenues. (Of course, you never see the conservatives who lobby for decreases in business taxes for competitiveness calling for repealing Prop 13)
On the one hand, I would say that there certainly is a great deal of unreality in our housing market, and places like LA have wound up with highly skewed real estate markets. And where things are highly skewed it is usually the result of some incentives doing the skewing. On the other hand a true real estate free for all would be truly scary out here, and even gradual scaling back of incentives can have huge ripple effects as speculators jump to get ahead of the trends. And the balance between commercial and residential markets is particularly difficult in California where Prop 13 makes governments far more reliant on commercial sales tax revenues over residential property tax revenues. (Of course, you never see the conservatives who lobby for decreases in business taxes for competitiveness calling for repealing Prop 13)