I’m reading this new book by economist Thomas Sowell — The Housing Boom and Bust.
From 2000 to 2005, the average home price in the United States increased by one-third. Millions of Americans began using their homes as ATMs, getting credit lines from numerous banks to pay off their other debts (whose interest was not tax deductible, only mortgage interest payments are deductible). Then in 2007, it all crashed.
* One of the consequences of reselling mortgages — almost all mortgages banks make are sold to such institutions as Fannie Mae and Freddie Mac — is that banks have little incentive to be careful about the financial qualifications of people it loans money to.
* Until 1970, home prices in California were comparable to home prices around the country. What happened?
In the San Francisco Bay Area for example, in 2005 the median-priced home cost more than three times the national average.
The quality of homes does not vary much from low-price states to high-price states.
The cost of home building is not the reason. That’s pretty much the same everywhere.
Incomes and population in California are rising at a national average.
The 1970s saw a lot of laws passed in California restricting the use of land.
In whatever places building restrictions have been tightened, home prices have shot up.
If you want to prevent development, you can use open space laws, zoning laws, height restrictions, minimum lot size laws, historical preservation laws, building permit limits and farmland preservation laws.
Without these restrictions, a growing demand for housing can be met without rising prices. In Manhattan during the 1950s, tens of thousands of new housing units were built without rising prices in real terms, but after the imposition of new building restrictions in the 1970s, real estate prices in Manhattan skyrocketed and the housing stock barely increased.
Less than 10% of the land in the United States has been developed while trees cover more than six times the area of all cities and towns put together.
In 2005, the New York Times reported: “Despite a widespread sense that real estate has never been more expensive, families in the vast majority of the country can still buy a house for a smaller share of their income than they could have a generation ago.”
During the housing boom, it was widely said that the free market had failed to provide affordable housing and the government must now intervene.
What is a predatory lender? The Federal Reserve has no definition. It seems to Tom Sowell that such a lender is one who lends money not with the aim of being repaid but with the aim of foreclosing on the property of those who signed up for mortgages they did not understand and could not repay.