The NYT took a strong position on its editorial page today demanding that President Bush join its effort to keep house prices unaffordable for tens of millions of families. That's right, the NYT wants housing to be unaffordable. They didn't use this term, but they complained that house prices were falling and they wanted President Bush to sign legislation to keep house prices high. While efforts aimed at keeping the housing bubble from deflating might be beneficial to those looking to sell their homes in the next year or two, they are incredibly bad public policy. A house price support program will cost the taxpayers billions of dollars, and it will inevitably fail, since high house prices will lead to more construction, which will lead to more oversupply, which will place more downward pressure on prices. Unless the government is willing to spend infinite amounts of money, its house price support program will eventually fail. The effort to temporarily prop up house prices is also likely to hurt many of the families who it claims to be helping. In many cases, these families will be paying much more in housing costs to stay in a house that they "own," than they would pay to rent a comparable unit. Since the house price will eventually fall, they will never accumulate any equity. Getting moderate income families to divert money from health care and child care to paying a mortgage is not a favor to them.
--Dean Baker
