White House Reinflating Housing Bubble

September 28, 2009

The Wall Street Journal reports that the Obama administration plans on spending $35 billion on state and local housing agencies to bolster lending to low- and moderate-income home buyers. The effort would come on the heels of other federal interventions to prop up the ailing housing market:

The housing bubble and subsequent burst was fostered in part by the federal government’s politicized effort to increase the nation’s homeownership rate. As if enough damage has not been done, policymakers appear intent on making the same mistake twice. It’s akin to an individual burning a hand on a hot stove top and then proceeding to purposefully take the other hand and place it on the stove top for an additional burning. As the Journal notes:

More broadly, the move is an attempt to bolster the role of government in encouraging homeownership, especially among low-income Americans. Considered well-meaning by many, the principle has been blamed by others for fueling the housing boom that led to last year’s financial meltdown.

As my piece on scandals at the Department of Housing and Urban Development demonstrates, the government’s penchant for politicization and corruption is reason enough for it to extricate itself from the housing market. Unfortunately, Washington is beholden to the “affordable housing” lobby and the powerful homebuilding, realtor, and mortgage banking lobbies. Sadly, we can expect to see continued federal interventions at the prodding of these special interests under the guise of promoting homeownership. The price the economy – and taxpayers – pays for the continued meddling remains to be seen. 

For more on housing financing and the recent housing meltdown, please see here.

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