Revamping the Housing Industry

By Andrew Cho

With the housing market in turmoil, it is only time that a new policy is formed. It has been stated that the current policy put too much faith in subsidizing borrowing, and was the catalyst to the current state of affairs. In a revamped way of thinking, the American Enterprise Institute argues that "the federal housing policy should ensure that our poorest citizens are able to live in decent housing."

In order to fix the problem of housing for the poor, it is best to provide more housing vouchers and not costly tax programs. The current system makes the mistake of trying to apply the same rules everywhere. It subsidizes new housing in areas that already have plenty of cheap homes. Borrowing subsidies do little good when housing supply is constrained. In markets with limited supply, credit subsidies push up housing prices, and make housing less, not more, affordable.

The current housing price slump shouldn’t disguise the fact that homes in San Francisco and New York remain extremely expensive by historical standards. Prices are far above construction costs because robust housing demand, fueled by rising economic productivity, has collided against barriers to supply, like minimum lot sizes and height limits.

References:
http://economix.blogs.nytimes.com/2008/12/16/two-ways-to-revamp-us-housing-policy/?scp=1&sq=housing%20crisis%20&st=cse
http://www.nytimes.com/2009/02/19/business/19housing.html?scp=4&sq=housing%20crisis%20&st=cse
http://topics.blogs.nytimes.com/2009/02/27/seeking-solutions-to-americas-housing-crisis/?scp=6&sq=housing%20crisis%20&st=cse