Why does our Government want housing to be expensive?

Why does our Government want housing to be expensive?

Is it for legitimate economic reasons?

Is it political? Corruption? All of the above?

Barney Frank says in The New York Times

“I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast. That’s a policy.”

Before we dig deeper into the question, let's all agree that there is a natural level of home prices that would exist without excessive Government stimulating or subsidizing.

Pick any neighborhood or look at the nation as a whole, and the monthly value of shelter will have a direct relationship with income levels...with people's ability to pay.

The above chart is from Robert Shiller, with our highlighting over the top. It shows the history of home prices, since 1890, adjusted for inflation. You can see that, aside from the World Wars, The Great Depression, and the recent Housing Bubble, the trendline of home prices is basically flat over time. In other words, home prices do not go up faster than inflation.

This makes logical sense. Home prices, over time, cannot go up faster then people's ability to pay for them.

For the sake of this discussion, I'm going to call the figure, represented by the yellow line above, the natural value of homes over time .

ECONOMICS

From an economic perspective, what benefits would there be in inflating home prices beyond their natural level? Economically speaking, if more money is spent on shelter, then there is less money to save or spend on other things. Banks benefit disproportionately, while other industries suffer because their customers have less disposable income to spend.

This is neither efficient nor the most productive use of our capital.

Families really suffer from high home prices because they either have to live in a less-desirable area that they can afford, or stretch themselves financially to live in a better area. This means more parents working, and less time with our kids. With financial stress comes a whole host of social problems: higher divorce rates, alcohol and drug abuse, medical problems, and countless ways it can scar our children.

Why suffer through this?

What possible economic benefits outweigh these economic and social costs?

Who wins? Banks and Government.

Higher prices mean higher mortgages and higher property taxes...which are good for banks and good for Government, but bad for everyone else.

(Funny how when the Banks and Government are the ones writing the rules, the rules come out in their favor.)

ADDICTED TO DEBT

But we're not the junkies, or the addicts as others would propose.

The real junkies are:

1. The Banks, whose size relative to GDP has swollen to unsustainable levels.
2. Local Governments, who rely too heavily on unsustainable property taxes.
3. State Governments, who are invested heavily in a housing turn-around (see CalPERS).
4. The Federal Government, who, over the last 30 years, fostered an entire economy fueled by debt rather than actual production, hoping this day would never come.

WE NEED AN INTERVENTION NOW

Our Government and the banks that run it are close to overdosing. One day, if nothing is done, the bond market will snap, the dollar will crash, and interest rates will skyrocket.

Without an intervention, this will happen at some point. Eventually, the parabola is not sustainable.

Just like you wouldn't trust a drug addict to get clean by themselves, we cannot leave this up to our elected/appointed leaders.

Why? Because they are literally fighting for their lives:

Banks, and the entire financial-services industry must shrink back to it's historical, natural percentage of GDP. Business like growing, not shrinking, and they will fight with every politician they have at their disposal.

Politicians get elected by promising voters something for nothing. Not the other way around. Politicians are afraid to cut Government services to sustainable levels because it would be career suicide.

WHY DOES THE GOVERNMENT WANT HOUSING TO BE EXPENSIVE?

Because it's better for them.

Every loan modification, every stalled foreclosure, and every ridiculous FHA loan is designed to prop up home prices and keep us in debt.

Sub 5% interest rates, Subsidized low-income housing, cash-for clunkers, cash-for-appliances, and economically-insane homebuyer tax credits are all orchestrated to produce higher debt and higher property taxes for each of us.

So we can feed their addictions.

Think I'm a crazy conspiracy theorist?

If my theory is wrong, would The Powers That Be behave any differently?

This article originally appeared on HousingStorm.com