Goodbye ownership society?

Wait, I thought renting was throwing money away?

The only way to promote an ownership society, was to give people, who could not afford a home, the ability to, at least temporarily, afford a home. That was the experiment that we just witnessed with terrible results. The low interest rates and lax lending standards brought demand forward. That's what incentives do to a market. The person back in 2003 that normally would have only bought a home in say 2008 (because that's how long it would have taken them to save a 20% down payment) suddenly found themselves buying in 2004. And when demand is brougth forward, it sends a false signal to the market that demand is high due to growth. But the demand is false, and when the future comes, and the demand that should have been there, is not, the system crumbles.

I recommend reading Steve Malanga's article Obsessive Housing Disorder for a short history of housing policy in the US. You'll see that the problem didn't start with Bush. And is not likely to end there either.

city-journal.org/2009/19_2_homeownership.html
(add the http www stuff)

Susan

It's about time. "Ownership society" is a pretty ironic phrase, actually. If you don't own your home free and clear, it is the lender who owns you.

Also, laying the blame at the feet of the lenders by dubbing them "predatory" is a cop-out in most cases. Buyers are ultimately responsible for their own decisions. If you don't understand it, don't sign it.

we may have our new pt barnum. if the wacko right gets wind of this expect a couple hundred comments. the global economy nearly collapsed b/c of barney frank.

If W was referring to "collective ownership," then I'd say his plan is still right on track. Carry on comrades...

Homeownership is still at 67.5%, I believe. It is not a zero sum game, you know. However, Government should probably scale back its involvement in housing. I do believe housing is one of those things that market is capable of taking care of - buy, build, own, rent, short-term, long-term, etc- - it is all available. Not everything should be left to the vagaries of marketplace, but housing should be.

Should have been called the pwnership society. It was very anti-middle class, causing a bid-up in housing prices and household debt levels for the sole benefit of Wall Street and high-roller real estate political donors.

However, I'm not entirely clear how building rafts of subsidized housing will be any less anti-middle class. The country is already awash in unoccupied housing, with vacancy rates for rental units, condos, and SFHs at record levels. Rather than targeting certain people for privilege, we might do better by trying to bring back middle class jobs that generate middle class incomes.

The housing bubble started before Bush, but Bush exacerbated it. I don't see anything wrong with helping more people into home ownership in general terms. What I take issue with is that it drove people to speculate or put themselves into a poor financial position through purchase or over improvement. Houses turned into stock and piggy banks, it was no longer a shelter and home. Home ownership is not a g-d given right. That right is having an adequate roof over people's head. There is nothing wrong with renting. In fact, this is a highly viable and appropriate option for most people and has been. The only issue I see in shifting funds to rental property is that speculators will now move towards purchasing or fixing rental properties then create higher rents to recoup cost and profit. Watch how rental affordability will look if we adopt this in the long term.

If they continue with the low mortgage rates and tax credits for first time homebuyers, then I would label them all hypocrites.

More squeezing of the middle class. The "affordable housing" programs administered in the Boston area are greatly abused by officials (politically) and citizens (low-income renters) alike, and until the abuses are cleaned up there definitely should not be anymore expansion of the funding. We live at a "luxury" apartment complex (new, well-built, with luxury amenities like new stainless steel appliances, crown molding interiors, upscale theater room, upscale internet cafe, upscale exercise room, luxury swimming pool, etc.) just outside the city, where we pay about $2000/month for rent. Shortly after moving there last year and meeting fellow tenants, we discovered we were the only ones we knew paying full price, everyone else we talked to were under the Section 8 or similar program getting to stay there at a fraction of the price. One person we talked with is paying only about $700/month for the same product we are paying $2000/month. I am certainly in favor of helping the less fortunate, but on a much more reasonable scale. We should be having programs to give the poor a bus pass to use NOT a new Lexus, food stamps NOT daily meals at Legal Sea Foods and the Oak Room, and -- more to the point -- basic no-frills housing NOT top-of-the-line luxury homes. I've talked with real estate brokers that told me that it is an insider secret that these "affordable housing" programs actually prop up and inflate the regular rental prices for the normal folks, since without them the management companies wouldn't be able to maintain occupancy at such high prices without the government footing the bill for the Section 8 folks.

David/#3, you're assuming that the contracts aren't being intentionally obfuscated to confuse the signer.

Example: “I teach contract law at Harvard, and I can’t understand half of what these credit card companies say” - Elizabeth Warren

Someone's pro-bama ....Scott.....

Are you not going to lay some/most of the blame on Bubba for encouraging people to buy...aka the minorities with no money? Or do you have a man crush on him?

What is "affordable," and affordable for whom? I don't have any data, and my perspective is skewed, but during the currently deflating bubble, affordable seemed to mean "small and not worth the ~$280K price." It's a little better now in MA, and I'd be interested in real data, but it seems to me that that even so-called affordable housing seems to be right around or even higher than 2.5 - 3 times average gross income in their surrounding communities. Which means "affordable" = "traditional rational market price for median income households." But go ahead and build all those units, that should finally bring the rents down to a point where housing will need to come down to compete with renting options.

What is "affordable," and affordable for whom? I don't have any data, and my perspective is skewed, but during the currently deflating bubble, affordable seemed to mean "small and not worth the ~$280K price." It's a little better now in MA, and I'd be interested in real data, but it seems to me that that even so-called affordable housing seems to be right around or even higher than 2.5 - 3 times average gross income in their surrounding communities. Which means "affordable" = "traditional rational market price for median income households." But go ahead and build all those units, that should finally bring the rents down to a point where housing will need to come down to compete with renting options.

US Census data shows that homeowership saw significant increases during the Clinton Administration. The rate had already peaked by the time President Bush was outlining his vision of an "Ownership Society" in 2004. Economists Nouriel Roubini and Robert Shiller were among the first in 2005 to question the speculative wave of home prices during the housing bubble.

but all the realtors are saying "Now's the time to buy!"

Community Reinvestment Act anyone???

Community Reinvestment Act anyone???

It's bad enough not to have a grasp of the facts, but much worse to display it right after an earlier post filled the holes in your knowledge.

#10. It is a well known economic fact that anytime the government subsidizes an industry or sector, with the intent of improvement, it in fact has a negative impact. Affordable housing is just another name for rent control. And rent control does not work. As you control the price of some units, the price for other units skyrockets. That is exactly what Squeeze is experiencing. He/She has to pay an elevated rental rate to make up for the lower rate going to the Section 8 residents. There is no Free Lunch and this is just another form of redistribution of wealth.

Section 8 renters don't get a lower rate. They pay a set proportion of their income (30%) toward their rent and the voucher picks up the balance. So, the landlord in the $2,000 unit is getting $2,000 from both the Section 8 tenant and the market rate tenant. Unless the apartment is over the amount Section 8 will pay for that size unit. In which case the landlord can charge less or the tenant can pay more. (I have no idea if Section 8 monitors and prevents tenants from paying more ... my units have never gone over the cap. I know it is sometimes done.)

An interesting result of this is that rents resist going down when the market softens since Section 8 will pay, in effect, more than the market will bear. They will adjust their rates down, but it's a very slow process.

Scott,
In addition to Bush’s failings, there may have been minor contributions from some entities you didn’t mention; the lending industry, NAR, fraud on loan applications by millions of borrowers and national home builders. Congress may have also played a role. Here are direct, contextual quotes from Representative Barney Frank in a speech before The House of Representatives on June 27, 2005:

“I think we have an excessive degree of concern right now over home ownership and its role in the economy.”
“Those who argue that housing prices are now at the point of a bubble seem to me to be missing a very important point. Unlike previous examples we have had where substantial excessive inflation of prices later caused some problems, we are talking here about an entity, home ownership, homes, where there is not the degree of leverage that we have seen elsewhere. This is not the dot com situation.”
“So, those of us on our committee will continue to push for home ownership.”

#20. Thanks for the clarification. The point still remains: there is no Free Lunch and someone has to pay for this subsidy. The housing in fact is not really affordable at all. It appears affordable to the Section 8 resident, but the affordability comes at the expense of the ones paying the subsidy. A building owner collects $2000 from everyone. It's just in one case (Squeeze) the total amount comes out of his/her pocket. In the other case (Section 8), the renter picks up a portion of the rent and the remaining comes out of someone elses pocket. It is just another example of wealth redistribution and it solves nothing.

OWEnership society is more like it....

Sometimes we forget that we are humans when we talk about things like Section 8. Families find it difficult to live and work in Massachusetts, many people don't have the same opportunities for education or the same support from their families to make it to the point where they can afford to live here. Many people on Section 8 are disabled (prevented from working because of a real injury or illness) or work at very low income jobs. Most people who are in the middle class today are here because they started out in the middle class. Do they work hard? Yes. Do poor people work any less? No, often they work the same or more. Is it fair that we need to subsidize housing? No. Should those children be out in the cold? No. Are there people abusing the system? Yes. Are they in the majority? No. Is there a better solution? Probably. Can you come up with one? Until then, I'll support families having shelter.

I agree that W's housing policy was about as coherent as his energy policy :-/

However, I've never quite understood why Greenspan hasn't caught as much public guff for the housing debacle as politicians do - whether it be Clinton, Bush.......Barney Frank. I certainly think they had their faults.

But for Greenspan, as the amount of homes sold and their prices started to skyrocket to the point of being irrational, he really should have been pushing for higher interest rates at that time. Isn't that that basic monetary policy? Higher employment leads to more money in the system which leads to more activity, lower supply and higher prices: inflation.

Higher unemployment leads to less money active in the system to greater supply and lower prices........until government gets more involved.

All that said, #23 Hung nailed it...again.