Wealth has of course declined across the board with the decline of home values and the recession, but a new Pew Research Center report indicates that the gap has been especially severe for minority households.
I think Arnold Kling is right to say that one of the things this highlights is the real problem with government programs to “encourage” homeownership. Homeownership, for most of us, involves making a highly leveraged speculative investment in land. When Fannie Mae or other government entities create special targeted programs to “help” low-income families achieve homeownership what they’re doing is extending an extra special amount of leverage to said families. This is a real subsidy, and it can provide a real benefit to the families in question, but it’s a mighty strange thing to be doing. After all, nobody ever proposes that the government create a program to subsidize poor people making leveraged investments in oil futures. Why not just take the expected cost of the program and give it to poor people? Of course, with housing it’s complicated because the government runs other programs, mostly on the tax side, to subsidize speculative leveraged investments in land when undertaken by higher income people. Thus a certain kind of unfairness arises by failing to come up with ways to create subsidies for poor people.
But the right solution here is to try to unwind the whole tangled knot of subsidies and help poor people with much more targeted measures that don’t involve pushing them into taking on more risk than is prudent.
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