Thursday, February 19, 2009

Thoughts on housing

So Obama now has a plan to help out homeowners. It appears, at first glance, to be restrictive enough to avoid some of the concerns about moral hazard, though there still seems to be some sense that it's necessary to prop up the housing market. For any of us who lived through the tech bubble at the turn of the century, we know that "not all bubbles are created equal." No one was helped through the roller-coaster ride of the NASDAQ, even though its rise and fall was similar to what we've just seen in the real estate market.

Robert Reich articulates the difference:
Expect the usual grousing about "moral hazard," especially from Republicans who normally grouse about normal hazard. And under normal circumstances, they have a point. The government should not be bailing out mortgage lenders who should never have lent money to people unlikely to be able to repay, or borrowers who should never have taken out a mortage loan. Under normal circumstances, government shouldn't be bailing out bankers, either. But these aren't normal circumstances. We're in an economic crisis. And a failure to put millions of homeowners on a firmer footing would send more shock waves throughout the economy. Not only will more people lose their homes. Surrounding homes will lose value as well, as neighborhoods become blighted with more empty houses. And lenders, worried that even more borrowers can't repay loans, will stop making additional ones.
The astute Professor Reich makes good points here; however, it is getting tiresome to see all kinds of questionable policies trotted out under the "economic crisis" banner. It's getting to the point where the discussion has been templatized: Government shouldn't be doing A, but (all together now) we're in a major crisis, so A has suddenly become a standard part of the repertoire. Is there anything that isn't justifiable?

As I've written before, I'm concerned that current conditions require a level of fine-tuning that government isn't capable of performing. Can we really unwind all these programs when conditions warrant, or will we over-correct, steer away from the mountain and right over the cliff?

But let's look a little more closely at Reich's statement. There's a kind of blackmail going on here, as those homebuyers who made foolish decisions ("sure I can put 60% of my income into housing") are "helped" because the alternative is that the rest of us will end up paying for it anyway. Tumbleweed will roll through our desolate streets as even those of us who were prudent end up in a "blighted" neighborhood, trapped as our homes become unsalable and bands of brigands run amok.

There is reason to be concerned, but we need to consider something else: There are communities that should not exist, that came into being only because people had inflated expectations about what they could afford and where they could live. I wrote in October about Yorkville, a nice small farm town 50 miles west of Chicago that got the hype and saw itself becoming a major city. Reality has now set in, mainly to the homeowners who are sitting by themselves in desolate subdivisions.

The developers moved in, bought up farmland, stripped off the topsoil, and started building with little concern for infrastructure. The early buyers got deals on their four-bedrooms on a sixth of an acre, feeling that they had made it. Then came the crash, and those early birds are now surrounded by a mix of empty land and empty houses, and they've found that the resale market is lousy.

The question: do we help these people work out their mortgage? Do we accept that, once a developer has put a faux-brick sign (there are a lot of subdivision name generators out there; a good one is here, and I'm going to adopt "Musty Acorn Pointe" for my area) in the middle of a clay field, the ground becomes consecrated and MUST BE SAVED?

On the other hand, if we do decide that Dowdy Cave Pointe must be allowed to die (and there's nothing in any bill, real or proposed, to do that), what can be done? It won't revert to farmland, as the growing conditions have been ruined. There aren't enough transshipment warehouses in the world to fill all the failed subdivisions.

When a country as a whole does foolish things over a long period of time, there is eventually a price to pay. We want to believe that various policies and programs will create a "soft landing," that we'll all share the pain and get through it together.

That kind of naivete is foolish and easily exploited by those who will seek to gain from the current crisis, either financially or politically. It's fair for us to ask questions about our actions without slipping into Republican-style obstructionism.


Citizen Carrie said...

Blogger ate my original comment, so if it shows up at a later time, I apologize for the duplicate.

Thanks for the random subdivsion name generator! I never knew they existed, but I should have figured it out.

Around where I live, the subdivisions from the 1970's and 1980's have names that remind you of the bucolic English countryside, like Rolling Meadows.

In the 1990's, and for $100,000 to $250,000 more, you could move into something that sounded like a genuine English village, like, Twyckenham Estates.

During the last days of the bubble, for $250,000 to $500,000 more, you could move into a sub that sounded like a Las Vegas resort, like Bellagio or Venezia. Really classy, huh? I guess you're supposed to think of Italian marble tile in your very own palazzo.

Androcass said...

As is obvious from my post, my "favorites" are the developments (whether housing or shopping) that use high-falutin' words like "Pointe" or "Towne" (at least the first is a real word, though I'm never sure if they're referring to a French place, a French concept, or a ballet technique). I do think that extra 'e' makes things oh-so-classy, don't you, Citizene Carriee?

Citizen Carrie said...

I wonder how many people would move something called "Nouveau Riche" subdivision? I bet it would fill up pretty quickly because, in the immortal words of Gomez Adams, "Tish, that's French!"

Androcass said...

I wonder how many people would move into "Nouveau Pauvre"? Still sounds pretty classy.

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