Saturday, December 3, 2016

Affordable Housing

This post will compare two affordable housing programs, one by the government and one in the private sector.

The government one began when the US Department of Housing and Urban Development (HUD) was given authority under 1992 legislation to undertake an affordable housing program. HUD imposed goals on mortgage providers, especially Fannie Mae and Freddie Mac to make it easier for medium and lower income people to get a mortgage and buy a home. (Of course, pushing only buying neglects rentals.) HUD pursued its goal by promulgating weaker underwriting practices – lower down-payments, lower credit scores, accepting higher ratios of house and house-related expenses to income for buyers, and weaker documentation of the buyer's income. They were usually called subprime mortgages. Some were called Alt-A mortgages. Over the next 16 years or so this led to a housing bubble, then a crash in house prices, much higher mortgage defaults, and foreclosures. All this spilled over into the wider financial sector that enabled the mortgages, resulting in the Financial Crisis of 2007-8. Advocates of government activism and government apologists say the financial crisis was created by the private sector. Of course, there were some problems there. However, the primary cause was these affordable housing goals, and they made possible the problems in the private sector.

If you want to read more about this, see Hidden In Plain Sight. This government affordable housing program unwittingly led to a “train wreck.” The fix took multi-$100 billion bailouts with taxpayer money. 

The private sector one has only begun, but I bet it will turn out far better. The key elements are in a Wall Street Journal article, from which I cite. “[Facebook] announced Friday it will spend about $20 million in Menlo Park and East Palo Alto, Calif., two cities that surround its campus, to create a fund to build new housing, support job-training programs and provide legal assistance to tenants in danger of eviction.
      Some $18.5 million will go to a fund to build new housing, primarily targeted at low- and moderate-income families, with consultation from community groups."

Why are they doing this? I attribute it to the very high price of housing in Silicon Valley. (This shows all single family homes under $800,000 in Palo Alto). Also, Facebook, Google and other companies in Silicon Valley are already running buses from distant areas like San Francisco where their employees can find cheaper housing. You can read about it here and several other places on the Internet.

After the Facebook housing is built many employees will find more affordable housing near work and thus shorter commutes, distance and time. A side effect will probably be that housing will be made more affordable in the areas from which they move. It will probably work out pretty well. And it will not lead to multi-$100 billion bailouts with taxpayer money. 

I have described a government-created affordable housing program that led to a “train wreck” and a private-sector affordable housing program. Which do you prefer?


1 comment:

  1. Good post. Give me the private housing solution every time! Facebook is spending its own money, and so has the incentive to do it wisely. Those in government, meanwhile, have little accountability to the taxpayers, and routinely squander their money.

    The politicians and bureaucrats forced us to live operate under their foolish affordable housing rules and goals, creating a boom and bust. When the bust happened, they blamed the private sector instead of themselves. The foxes guarding the hen house, Dodd and Frank, even got away with taking credit for allegedly fixing the financial crisis they had a big hand in causing in the first place.

    I'll bet FB does a decent job of easing the housing shortage, too. But if not, Facebook's losses would have been small and contained -- and entirely on them, not the taxpayers.

    Gralee Parr

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