No. of Recommendations: 5
How Is Federal Housing Policy Populist When Prices Are Rising?

"For some time now, demand for houses has been artificially boosted by federal and state tax policies, rising governmental involvement in residential-debt financing, and persistently low interest rates orchestrated by the Federal Reserve.


Meanwhile, the federal government has virtually nationalized residential lending through the Federal Housing Administration, Fannie, Freddie and other programs, thereby substituting political control for market forces

The push to put people in homes and save the casualties of housing downturns has caused a gradual long-term divergence between housing prices and incomes, paradoxically putting us on an inexorable path to redefine the middle class as property-less.


In 1990, the median price of a home was about 3.25 times median annual income. At the peak of the housing bubble in 2005, the multiple climbed to 4.73, but even in 2010, ostensibly a point of historic affordability, it was still 3.5. To return to the 1990 multiple, the median price of a home would have had to drop another 7.2% below 2010 levels.


To make room for a future middle class, policymakers need to abandon the idea that the fortunes of the economy turn on rising home prices rather than the reverse. It’s in everyone’s interest that home values gradually increase. But when housing prices rise faster than middle-class incomes, that’s nobody’s populism and may indeed bring about the end to the cornerstone of middle-class life — the owner-occupied home."

Check out the graph of median home prices versus median incomes.

It shouldn't be surprising that government attempts at making homes more affordable are making homes less affordable.
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