Bailout

Where we went wrong in housing

By Felix Salmon

Go read this interview with Steve Waldman, one of the econoblogosphere’s most thoughtful and intelligent writers. Here he is on the morals of walking away from your mortgage:

The financial industry has changed the economic and legal landscape surrounding consumer lending so that it simply bears no resemblance at all to interpersonal loans among people of good will in continuing relationships. But those are the norms they ask borrowers to adopt with respect to repayment. That act, demanding others act in accordance with standards from which one exempts oneself, is morally offensive. In a society which, despite economic difference, accepts no social class, ones moral obligation is to behave towards others as others must behave towards you. It is clear that, in general, banks and the special purpose entities that increasingly replace them treat their transactions with borrowers as hard-nosed business arrangements which they are willing to pursue on adversarial terms when doing so is in their interest. Borrowers should do the same. To do otherwise is to reward the cynical immorality of others, which serves no social good.

And here he is on the fetish of homeownership:

I think the government has chronically oversubsidized mortgage lending and homeownership. We cannot know what would have been, but I think we?d have a different and better housing market if we didn?t tilt the scales of the buy/rent decision towards BUY BUY BUY. The business of shelter provision for middle class families is horribly inefficient, literally a cottage industry. Absent all the subsidies, middle-class housing might have become professionalized by now, which could lead to enormous savings in money and aggravation for people who now waste time fighting with plumbers and roofers on an ad hoc basis. It?s remarkable that homeownership rates have kept rising even as people?s tenure in jobs has fallen and mobility has grown more valuable. We?ve made homeownership a totem of middle class prosperity. In doing so, we may have, um, foreclosed consideration of a variety of superior arrangements.

I love the idea of “professionalizing” housing: call it the German model. I’d note that an interesting hybrid exists in Manhattan: the co-op apartment building, where you pay a substantial monthly fee to a landlord-like figure who deals with most of the headaches of ownership, and where the board insists on high minimum-net-worth requirements before anybody can buy into the building, to help avoid the risk of foreclosure. It doesn’t really scale, though, and it doesn’t solve the mobility problem.

Full post as published by Macroprudential on January 23, 2010 (boomark / email).