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Friday, February 06, 2009

Economics I don't understand, #4

There seem to be a lot of people interested in stabilizing housing prices, or getting them to rise again.

But

1. Housing prices are still substantially above historical levels.


2. When housing prices are high, fewer people can afford homes, and more people spend a very high percentage of their income on housing -- much higher than the old rule of 30% of your income on housing (mortgage + taxes + maintenance). That's not financially healthy.

3. High housing prices are particularly a problem for the young, who don't have an existing house. Having a lot of disgruntled young adults doesn't seem like a great social policy.

4. For years, there's been a problem finding affordable housing. Affordable housing means housing prices have to get lower in relation to income. Isn't it just that simple? How would stabilizing prices help?

5. I don't understand how getting housing prices to stabilize at an unnaturally high level helps the housing construction industry, either. If people can't afford housing, it won't be built. The last few years have been a speculative bubble we are now working off, not some desirable state to be returned to.