Housing Market and Government Cont'd

http://www.futureofcapitalism.com/2009/09/housing-market-and-government-1

A post here yesterday highlighted the absurdity of a Wall Street Journal article that claimed "the government's efforts are the primary reason the housing market is functioning at all." Today the New York Times gets into the act with an article that begins "When Congress passed an $8,000 tax credit for first-time home buyers last winter, it was intended as a dose of shock therapy during a crisis. Now the question is becoming whether the housing market can function without it." To its credit, the Times quotes some skeptics of the tax credit. But the same analysis offered here yesterday applies:

it's hard to believe that without the government's efforts, those in need of housing and those with space to rent or sell would not find some way to negotiate exchanges with each other at market-clearing prices, creating a functioning market. There's just too much demand and too much supply for that not to happen. At least it may be worth testing the counterfactual and seeing what would happen if the government exited the housing market. It's possible that prices would go down, and that some of the mortgage-backed securities held by banks would become less valuable then they are now, and that some of the bankers who bought those mortgage-backed securities would make less money or lose their jobs. But that might all be the working of a functioning market, not a non-functioning one. In functioning markets, prices can go down as well as up.

One interesting aspect of the Times article is that critics of the tax credit aren't all free-market or right of center types. The Times says both the Tax Policy Center of the Brookings Institution and the Urban Institute, and Dean Baker of the Soros and Barbra Streisand funded-Center for Economic and Policy Research have questioned the tax credit.

by Editor  |  Sep 16, 2009 at 10:08 am Related Topics:  Housing, Press, Taxes receive the latest by email: subscribe to the free futureofcapitalism.com mailing list