Home Store In Memoriam Deborah Newsletter Forum Topics Blogfeed Blogroll Facebook MySpace Contact Us About

FOX Business Pundit's Prescription For Housing Ills: Turn Construction Companies Into Destruction Companies

Reported by Ellen - December 27, 2008 -

Guest blogged by Dan

In the 1930's, in an effort to increase prices, there was a plan to slaughter farm animals and destroy milk so as to force supply down and force prices up. As a youngster, I read about this and it made no sense to me then. Doesn't make any sense to me now. But Fox Business and Elizabeth MacDonald think that's a great way to solve the housing market ills.

In her FOX Business column, MacDonald writes:

What has gone forgotten and in turn unsaid is that the housing crisis is severely aggravated by the ballooning number of unsold homes, an inventory overhang now at 10 to 11 months and rising.

The overhang continues to act like an anvil around the neck of existing home owners nationwide, has dragged down home prices across the country, has helped speed the implosion of Wall Street as mortgage securities blow out economic circuits right and left, and is behind a farrago of taxpayer-funded bailout programs of the economy."

While I might disagree with the language, this is true as far as it goes. But her solution is bizarre, given the Republican penchant for small government. And I find it hard to believe that even the most hardened leftist would go so far as...
Housing is in search of a bottom. We need a floor in home prices now. We need a floor in commercial real estate.

So stop the home builders and developers from building.

That's right, tell the home building companies they CAN'T BUILD. Okay, they're now out of business and have dumped their employees into the unemployment market. This seems harsh, even for EMac, so there is another possibility.

Instead of continuing these absurdities, The Wall Street Journal’s Holman Jenkins and Forbes Magazine guest columnist Susan Lee, an economist, have both advocated that the government should instead use bailout money to buy and demolish foreclosed, unoccupied or half-built houses in selected severely depressed markets, instead of bailing out the financials via capital injections and toxic security purchases."

Bulldoze abandoned properties now exacerbating severely depressed neighborhoods, and instead rehab the properties and turn them into parks, playgrounds, or any other community-based dwelling.

That's right, turn the construction companies into destruction companies.

Lee says: “Let’s take the median price of a home at $221,900, as it was in August, then add in $10,000 for demolition and disposal (the average price for such activities) and then–just to bias the figures against the scenario–let’s gross it up to a cost of $250,000 per house.

Result? The $700 bn for the bailout could be used to buy and bulldoze 2.8 mn homes.” That’s more than only 2.3 mn homes now vacant and for sale, Lee says.

So with the financial bailout funds we could demolish every foreclosed home in America. Okay, what used to be the neighbors house with swimming pool, is now an open field (hopefully they filled in the pool) where the neighborhood kids can play baseball. The row of townhouses a few miles over now sometimes have five units in a row, not six. We won't mention what is now called "Denture Street" as the rows have gaps in the middle. Looks just like a missing tooth. Now, we begin to discuss the effect of the loss of all these homes of the Property tax rolls of the various locations. Admittedly, if the house is sitting vacant, there are not taxes generated. If the house is pulled down, it will NEVER generate taxes.

For seven decades, Washington has over-subsidized an overgrown, weedy housing system. Fannie Mae, Freddie Mac, the Federal Home Loan Bank System, the Community Reinvestment Act, the S&Ls, tax credits, mortgage interest deductions, reduced capital gains taxes, all have encouraged colossal housing debt.

So once again claim that the problems go back to President Roosevelt, Claim that the GI bill that encouraged home ownership and assisted WWII veterans in buying a home was excessive. Community Reinvestment? Bad idea. We might as well also toss in the Fair Housing Act into the mix of unreasonable government interference. She also doesn't like the IRS mortgage interest deduction. Ignore completely President Bush's comments about an "Ownership Society." Ignore the efforts made by the administrations of Presidents Eisenhower, Nixon, Ford, and Reagan to encourage home ownership.

HERESY ALERT! Is that EMac saying that reduced capital gains taxes are not the panacea Fox Pundits claim?

EMac's solution is absurd.But she approaches the problem from the wrong end. The problem isn't that we have too many vacant houses, the problem is that we don't have enough people with secure, well-paying jobs, to afford those homes. Home ownership is a good thing. The trick is making sure that people can afford the houses they buy.