The Problem with Housing

US housing has in great part been built and supported by government subsidies. The first great subsidy was the mortgage deduction. The next was the low interest rate and easy money policy of Greenspan. Tack on to that the Clinton first time tax break on a home sale where the first $500K is tax free and you have some pretty good reasons to put money in real estate rather than stocks or anywhere else for that matter. . Add to that the federal governments pressure on banks that started under Clinton to write mortgages to people who could never ever pay them back and you have the makings of serious bubble. As with any industry or business supported by government subsidies the only way it can continue to grow is with more subsidies. Its a fact.

The only way to cure the excesses in housing and begin a real recovery is through a cathartic process. Instead our government is attempting to further encourage people to stay in mortgages they cant afford even at lower interest rates. The same government whose affordable housing policy pushed people into these mortgage now wishes to imprison them in a life of debt and misery. I guess this is compassionate liberalism. These same policies keep new buyers out of market. Decades of government subsidies have come home to roost.

Now with with many local and state governments in jams because of fiscal irresponsibility, taxes on real estate are increasing and that will not stop. Utility costs of home ownership increase each year. So instead of new subsidies to further support home prices,home owners are faced with increased overhead.

The government has also tried to inflate our way out of the housing mess. To date this has failed but has succeeded in destroying many in the middle class who are savers or live on fixed income. Those who have lived responsibly and made good decisions are being punished by the very government that created the problem.

There is also no way of telling how much capital has been miss allocated because of the favorable tax treatment of mortgages and the Clinton tax break. The market will find a way to reallocate this misplaced capital,the end result can only mean lower home prices.