Bailout

The CPSC and homeownership

By Felix Salmon

Jim Surowiecki weighs in on the Consumer Product Safety Commission today, but says that “the new regulations will come at a price”:

Serious regulation will mean that fewer people can buy homes. But this may not be a bad thing, given all the trouble the housing bubble caused.

For one thing, regulation doesn’t necessarily mean that fewer people will be able to buy homes. Expanding the number of people who can buy homes is the kind of thing that the CRA does, along with government downpayment assistance and the like for low- and middle-income families. That’s not going to go away.

Regulation does, on the other hand, mean that fewer people will be able to overpay for homes — to buy homes they can’t afford. In other words, it will help put a cap on house prices, since speculators and flippers won’t be able to buy anything they like armed with nothing but crossed fingers and a NINJA loan. So long as it costs less to buy than to rent, however, banks should be able to find a way to help most people buy a home if they really want to.

But in any case the housing bubble was hardly a consequence of rising homeownership: homeownership peaked long before the height of the bubble, at the end of 2004.

Rather, the positive effects of lower homeownership lie elsewhere: in more liquid labor markets; in thinner and happier people (not to mention much less leveraged households); and in less societal inequality between rich neighborhoods where substantially everybody owns their home and poor neighborhoods where substantially everybody rents. But Surowiecki knows all this: he wrote an entire column, last year, on the downside of homeownership.

Fewer people buying more affordable homes, then, isn’t a “price” of setting up the CPSC, as Surowiecki would have it. Rather, it’s set to be one of the CPSC’s main benefits. Let’s hope that homeownership falls as a result of the CPSC: it would make America a significantly better place.

Full post as published by Macroprudential on June 29, 2009 (boomark / email).