Keep Digging!

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It would be nice to think that one good thing to come out of the current disaster would be a rethinking of some of America’s badly misguided housing policies that, in the name of subsidizing homeownership, wind up pushing people to over-invest in their own homes. It’s bad economics, and it’s bad for the environment. But Via Atrios, it seems that some think we need even more:

The builders’ lobby is ramping up its sales pitch for a $250 billion stimulus package called “Fix Housing First,” arguing that financial markets won’t recover until home prices stop falling. They are calling for a generous tax credit for home purchases and a federal subsidy that would lower a homeowner’s mortgage rate.

This is nutty. Home prices are going to need to come back in line with fundamentals. We should take action to try to minimize the quantity of neighborhood-destroying foreclosures during the readjustment process. But trying to prop up home prices with new subsidies isn’t going to help — we need funds to flow directly to the people in the most need, and to doing things with a productive payoff in the infrastructure domain.