Two housing industry flaks suggest a novel way to reduce the U.S. housing surplus, in today’s Wall Street Journal.
Source link: http://blog.mises.org/9627/buy-a-house-receive-citizenship/
Buy a House, Receive Citizenship
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Can somebody explain what is bad about lower home prices and therefore lower cost of renting?
I wouldn’t mind to have in my city a drop of 30%.
@Florian
The issue of good or bad is a matter of perspective in this case. The “bad” of lower home prices is the marking down of assets, loss of jobs, etc. that arises due to the new information and people’s subsequent changes in behavior of consumption and saving. The people who speak of the bad ignore the “good” to which you refer, the increased affordability of housing (in nominal terms and probably real terms).
To channel Bastiat and Hazlitt, you must always consider the seen and the unseen.
I do not get the bad part.
Whats preferable a country where there is too much food or one where there is too little?
Whats preferable a country where there is too much housing space or one where there is too little?
Florian, we here mostly agree that housing prices need to come down, because the housing bubble caused too many houses to be built. It’s the politicians and bureaucrats that largely think that housing prices need to be propped up.
But prices are variable, depending upon supply and demand. Prices are the means used by the market to tell producers when more or less of a particular good needs to be produced so that we have just about the right amount of a good, instead of too much or too little. If for some reason there were too few houses, then we would say that the price should go up, so that home builders would be encouraged to build more houses and bring the price down again.
So if the proposal is to import (entice) people to have them purchase and occupy homes, then you’ll increase the labor supply which will lower the price of labor (wage). Then the government will attempt to prevent the wage from falling and cause unemployment. The higher level of unemployment will cause more people to default on their bills, like their mortgage.
My problem with the analysis of the housing crisis is the focus on home prices. I understand that if you have negative equity on your home or the price of the home is decreasing in value, you have a disincentive to continue paying your mortgage. But even if you’re not building equity in a home, you still have a roof over your head. You’re essentially paying rent. “Stabilizing” home prices or home sales does not make one’s mortgage bill more affordable. Foreclosures are a the result of mortgage holders not paying their bill, not falling home prices.
Well how about if we give foreign residence status when they buy say 2 or 3 US made cars? We know Americans are not buying cars. This will eliminate the surplus of autos and save the industry. Humm I think this idiots are unto something…
@Michael
As all governments mess with housing, the ideal situation cannot be expected and if theres just the choice of too much and too little left i prefer too much.
And talking about unseen consequences one has to think about the ponzi retirement systems. While this doesn’t look nice in US, in Europe its far worse, as europe has around 1.4 children per women unlike US with about 2.0. Also child birth is not balanced, the poor have more children than the middle class, if productivity is partly dependen on genes, this is the most serious threat to europes economy in the long run.
As far as i know there are only a few ways to effect birth rates:
-being religious, unlikely for europe
-cut social state, even more unlikely
-secure job, unlikely
-having enough housing space
-living close to grandparents of children
The last 2 are correlated with housing prices, so if housing prices drop its a sign of hope.(BTW, the last point seems to be the most important factor).
I’d like to see Europe become much more childfriendly and that would require lots of chain saws, bulldozers and concrete.
So a overheated housing boom might be very healthy for europe. But instead our clever government in Germany actually destroyed a tens of thousands empty flats in east germany, because they wanted to avoid a drop in prices.
Isn’t this the solution proposed by Yaron Brook of the Ayn Rand Institute from last year?
http://www.aynrand.org/site/News2?page=NewsArticle&id=22119&news_iv_ctrl=2509
Justin, you’re right. Proposals like this are an attempt to get the housing market to clear without letting the price level fall.
“Well how about if we give foreign residence status when they buy say 2 or 3 US made cars? ”
It’s cheaper now to buy a house in Detroit than a car made there
I’ve got a house I purchased as an investment (currently rented to some wonderful renters), and I knew the risks when I bought it. I knew that it could 1) go up in price, 2) go down in price, 3) stay the same, 4) real estate taxes could increase, 5) I might have trouble finding a decent renter (went through several), 6) rent prices could decline, 7) the renters could damage the property, etc. I could go on.
However, I couldn’t advocate destroying someone else’s property to raise the value of mine, which Florian Kren mentioned concerning German gov’t action.
(Sarcasm is coming) Hey, if it worked for homes, why don’t we do it with cars. We’ll call it the FIRE program. Burn up the extra cars. And if it works with cars, we can try it with unemployment. Unemployed people will be “processed” into camps and disposed of. We’ll stop home, car and wage prices from falling.
Why don’t people see this kind of thinking for the evil that it is.
In choosing to attempt to manipulate prices through force instead of allowing price declines to occur, advocates of these policies are engaging in the typical broken window fallacy.
Prices should fluctuate based on existing market conditions and the voluntary free will of individuals to engage in buying or selling goods and services.
In a free market economy where innovation and production are increasing, overall falling prices will be the norm. The falling prices will indicate an increasing standard of living, brought about by better, more efficient methods of production. Falling prices due to monetary deflation is a different animal altogether.
@AC Sarcasm? In Italy they are paying owners of “old” cars to give it up as scrap and buy a brand new one. I think it has to be a FIAT though…
Just a couple of weeks ago my friend told me. He got 2500 euro for the old car to spend in a new one. It’s the second time he sees this, the one before was in the late nineties. He scrapped his old FIAT Panda and bought a new one then.
@AC Sarcasm? In Italy they are paying owners of “old” cars to give it up as scrap and buy a brand new one.
The Chinese government is doing the same thing in hopes of increasing car sales.
Jesus Christ, we’re all gonna die.
Given the US’s massive foreign debt and not so good balance of trade, the US needs massive amounts of capital just to prevent collapse. Bringing in people with a lot of savings will add to the US’s current meager ability to retool and reindustrialize.
I say give citizenship to anyone who brings a lot of savings with them to this country and wants to work. Throwing out hard working, productive people is the fastest way into poverty.
How about if no one is given citizenship, and those that have it have it taken away?
I say give citizenship to anyone who brings a lot of savings with them to this country and wants to work. Throwing out hard working, productive people is the fastest way into poverty.
I’m game!
I’m already here, and I have savings in gold and silver!
I would like to see Cheney’s face when he read this article. Another stroke for sure. If this would pass without too much strings attached to it, the exchange rate of the dollar would jump super high in seconds. A proposal like this needs very careful analysis of short and long consequences.
The biggest problem with this proposal is that it would bring a flood of US dollars back into this country from abroad. This would be a major problem for the Fed, which would then have to deal with the inflation problem.
“Can somebody explain what is bad about lower home prices and therefore lower cost of renting?”
What’s “bad” about it is that it gives power to the people, power to individuals.
Every “self-respecting” government knows that a people should be kept stupid, poor, docile and paying taxes.
Should houses become too “cheap”, individuals will gain property rights and gain some level of independence from the government and God knows government can’t tolerate that.
It’s a shame what America has become.
As all governments mess with housing, the ideal situation cannot be expected and if theres just the choice of too much and too little left i prefer too much.
Florian, both too much and too little have their problems, and I wouldn’t care to choose between them for anyone else but me. Furthermore, I’m not going to ignore the right thing to do simply because it seems politically infeasible. Instead, we need to work at making it more feasible.
@AC
In defense of german government, they inherited the houses from socialist east germany, so legally it was government property. So no one destroyed property of someone else, so that some house owners benefit, but as usual property of everyone was wasted to give advantage to some interest group.
Why is the government so anxious to keep housing prices high? To protect the solvency of the banks. Here is the situation:
Lots of houses were sold to buyers who put about 5% or so down. Banks loaned them money with about a 30:1 leverage ratio (the bank only has 3% of the actual money).
If the housing prices fall 10% for some reason (i.e. bad economy, real estate bubble, etc.), then some owners will default on their loans. The bank loses money on defaults and foreclosures, which erodes the 3% equity they had in the loans. This impacts their ability to meet reserve requirements, destroys liquidity, and ultimately wipes out equity which means insolvency.
In a normal economy, bank insolvency would mean liquidation of the bank and closing its doors. But for some reason bankers don’t like that idea. So the solution is to have the government intervene in two ways.
First is to give the banks your money outright to increase assets (which theoretically restores assets, meets reserve requirements, and brings liquidity). We could call that robbing Peter to pay Paul, and the robbery part would be extremely apt.
Second is to prop up the price level of housing through various schemes so that the market value of assets exceeds book value of the loans and again restores assets, etc. This is a more subtle form of theft that forces you to pay someone else more than you would have to in a free market.
This is the reason why the government wants you to continue paying more than the house is worth or rent for more than the market would bear. The government is friends with the banker, and not your friend and definitely not your savior.
Does it work? It will work just as well as building a dam across the Mississippi river at New Orleans would stop the flow of water to the Gulf of Mexico. The water will back up and the dam will be enlarged and the land will get flooded, but at some point it will collapse. The longer the economic river is dammed up, the worse the torrent will be when the Federal dam caves in.
Michael Clem,
The very fact that libertarianism is politically infeasible should rejoice you and rejoice all other libertarians.
You cannot coerce people into freedom. Politics is coersion, therefore it would be paradoxal to try to bring libertarianism through political means.
It would be like pointing a gun at someone, ordering him to be free.
Or it would be like mugging people down the street, pointing a gun at them and saying KEEP YOUR MONEY ! See how silly that is ?
Or holding-up a bank ordering it to keep it’s money. This is a hold-up, keep your money, goodbye and have a nice day.
Libertarianism is not feasible politically because voters have nothing to gain at the expense of others. They cannot loot the wealth nor infringe the freedoms of their neighbors, therefore nobody votes for libertarians.
Instead, libertarianism will happen only when people are fed up by paying taxes and being regulated. When that happens, people will adopt the black market as the mainstream market, thereby circumventing governmental controls and taxes.
Civil disobedience is the only way libertarianism will happen. Not through elected government officials.
Libertarianism is built one person at a time, it’s a bottom-up process, and it’s incompatible with the top-down process of politics.
Buying contraband merchandise does much more to advance libertarianism than any political nominations or blog articles.
When you buy incandescent lamps at the black market because you refuse to bend to the government’s mandatory CFL lamp laws, you are advancing libertarianism.
When you buy cigarettes at the indian reserve instead of the convenience store to avoid paying taxes, you are advancing libertarianism.
When you buy a gun at a gun show, you are advancing libertarianism.
When you homeschool, you are advancing libertarianism.
When you start your own business and get payed under the table without declaring your revenues to the government, you are advancing libertarianism.
When you bootleg alcohol during the prohibition, you are advancing libertarianism.
Libertarianism is the rejection of authoritarianism and it is necessarily subversive and illegal.
Libertarians should not shy away from it, because it’s the only way to advance libertarianism.
Buying contraband merchandise does much more to advance libertarianism than any political nominations or blog articles.
When you buy incandescent lamps at the black market because you refuse to bend to the government’s mandatory CFL lamp laws, you are advancing libertarianism.
When you buy cigarettes at the indian reserve instead of the convenience store to avoid paying taxes, you are advancing libertarianism.
When you buy a gun at a gun show, you are advancing libertarianism.
When you homeschool, you are advancing libertarianism.
When you start your own business and get payed under the table without declaring your revenues to the government, you are advancing libertarianism.
When you bootleg alcohol during the prohibition, you are advancing libertarianism.
Libertarianism is the rejection of authoritarianism and it is necessarily subversive and illegal.
Libertarians should not shy away from it, because it’s the only way to advance libertarianism.
I think if the US housing market has too many houses, then you make a multi-year tax credit(10-20) to give incentive to people to demolish obsolete housing overhanging the market.
You can’t make fewer houses by lowering interest rates. You can’t make fewer houses by giving people a buy tax credit. You can only make fewer houses by un-confusing the market and ridding un-useful houses.
Will
AC,
Don’t laugh. FDR did that exact thing with pigs during the Great Depression. He had them slaughtered and buried (the equivalent of burning them up) in order to keep farm prices up at a time people were waiting on line a soup kitchens.
It is important not to put nation’s institutional non-economic values (moral, ethical and spiritual or ideological) on the line in exchange of propping up a badly beaten economy.
Haven’t we just witnessed a massive transfer of this nation’s wealth to non-US countries in conjunction with Asset Based Securities and Credit Swap Options? When the real estate market was booming they won and enjoyed the fruit of leverage. When the market was busted, they received insurance payout by hedging from the US. They still won.
Would’t it be conceivable that affluent non-US investors start funding any foreigners to purchase a house in the US and become US citizens? If this happened, who would influence the future of the USA?
The USA support free markets and exercise adequate levels of regulation to ensure free markets in pursuant of the nation’s ideologically defined happiness (monetary wealth, moral/ethical values and government/politics that promotes free man’s rights and independence among the nations).
Stupidity, it’s given out freely, and yet it still costs everybody dearly.
Only a stupid statist fool could advocate intentionally destoying valuable items, and incur additional costs while doing it, especially during times when people are lacking in food or shelter.
Concerning Germany and destruction of homes. Why in the world wouldn’t the German gov’t put the properties up for sale, sell them at market prices, then use the money they raised to offset the need for additional taxation. And if they didn’t want to “disrupt” the market by flooding it with homes, then sell off the properties over a proscribed period of time, say 5 – 10 years. Or they could’ve rented them out, rent to own type deals. Any number of sale/rent combinations. The goal should’ve been to ultimately get the property into private people’s hands. But don’t burn them up, tear them down, or otherwise render them destroyed, especially all the while taxing people to pay for the homes’ destruction.
FDR, like most politicians, simply react to the group that yells the loudest, brings the most votes or money to the table. They really can’t accept that the gov’t gets money largerly through involuntary transactions. And if the volume or value of those involuntary transactions increases, it is a loss of liberty.
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