I think we sometimes spend too much time, post-crisis, asking what, exactly, caused the crash and not enough time just asking what issues in generally the crash makes us reflect on. For example, you’d be hard-pressed to say that massive government subsidization of middle class homeownership is “the reason” we had this financial problem (it’s a longstanding policy, after all) but it’s tied in together and as Steve Waldman argues it seems like a very bad idea:
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.
The issue here, I would note, isn’t simply that the situation tilts the economic considerations in favor of “buy.” That tilting of the playing field also means that in most places the market for rental housing is just very thin. You find yourself with limited options and a lack of really appealing ways to sort through your options. Thanks to Craigslist and other online services this problem isn’t as bad as it once was, but it’s still the case that in large swathes of the country there are very limited rental options.
Last, of course, it’s quite hard to say why you would want, at the margin, to encourage scarce material and labor resources to be poured into the construction of larger houses rather than more factories or office buildings or transportation infrastructure. What if everyone’s house was slightly smaller but we all had nicer furniture and the roads didn’t have as many potholes? There’s deep roots in American political culture of the idea that public policy should subsidize people (or at least white people) in their effort to go out and own a farm. But the idea there is to take a non-productive asset—empty (or at least empty of white people) land—and turn it into a productive one, a farm. And the idea was that citizens would own their productive assets, and not be peasantesque tenant farmers. But a house with a lawn isn’t a farm, and someone renting a place to live isn’t a peasant dependent on the landlord for his subsistence.
I’m always hearing that Americans are attached to the free market and skeptical of government intervention in the economy, and that’s why we can’t make sure poor people have medicine when they’re sick. The whole housing sphere would be a good place for some of these alleged attributes of American psychology to manifest themselves.