The Feds Tried It—the Result Was a Disaster
BY DAVID S. LEWIS
The City of Bozeman has been trying to create “affordable housing” now for about a decade, but can’t make it happen. That’s in part because the federal government was, likewise, meddling where it does not belong, pushing bad loans as social policy that in turn created the housing bubble, driving up prices—anyone could get a mortgage. All the “affordable” loans also created the sub prime crisis, as federal social planners subverted what was once an extremely prudent industry—mortgage lending. We all know what happened, a worldwide crisis, after the feds (through Fannie and Freddie) bundled those bad loans and sold them as toxic assets with their own implicit guarantee that they were backed by the full faith and credit of the United States government, which means you and me. And now, presently, as is typical, government policies have brought about exactly the opposite of what was intended. Sales of both homes and loans are in the tank.
Just before all this foolishness came crashing down (fueled by the desire so many have to make fast money, and to own a home), Bozeman decided to get involved, meddling where it doesn’t belong, tampering with the animal spirits of commerce, forces of nature beyond the control of any governmental institution, so that it could put certain kinds of people into certain kinds of homes—in other words, the city injected social policy into the housing market (instead of simply maintaining parks and roads), and, as has now proven true, tried to superimpose an artificial scheme onto the way the world actually works.
Consider these quotes from a recent Bozeman Daily Chronicle report by Amanda Ricker:
“…[B]ecause the workforce homes come with deed restrictions and appreciation caps,” Ricker wrote, “buyers don’t want them. Since prices have come down, they can afford to get almost the same home without those constraints.”
In other words, the city’s interference created a reverse incentive, exactly the opposite of what was intended, while the market’s natural dynamics solved the problem.
Planning Director Tim McHarg, though, seems not to have grasped the lesson. —Bozeman needs a more flexible approach to workforce housing that’s not hamstrung by the market, he told the Chronicle.
But how about just staying out of the housing market all together? How about recognizing that tamper-ing with a force of nature, the housing market, is just that, the same as if someone manipulates an ecosys-tem—there’s always a consequence and a balance upset. Intervene in one area of a self-regulating system, and the natural force within that system produces a reaction—as with drugs in the human body. In other words, unintended consequences.
It’s not that trying to do good isn’t an admirable motive (and all that), it’s just that it often makes terrible governmental policy. Lots of people wanted to do good by getting houses into the hands of as many people as possible, especially minorities, even forcing banks to lend in minority neighborhoods. The result was a monumental disaster. Same goes for Welfare before Welfare Reform—it trained people to shun work, ruining their lives. Same with Cash for Clunkers, it made car sales spike, then tank, producing exactly the opposite of what was intended.
City planners would be better advised to learn about the natural world of collective human behavior rather than trying to thwart it. Regarding Bozeman’s housing market, this publication ran a cover story in August of 2007 detailing the city’s housing glut. There were too many houses being built, and the handwriting was on the wall—valuations could not be sustained, therefore they would come down, and city officials (were they wise) might have taken note. At that time, homebuyers in Bozeman were turning to Livingston anyway, where homes could be had for less, where they were affordable, the natural thing that people do. Now, we are told by realtors and the city itself, Bozeman prices have come down, competing with Livingston, and so homes are now more affordable in Bozeman too, close to the $200K range the planners wanted—their “affordable homes,” by the way, were never meant for poor people.
Loans though can now be hard to get, which drives the rental market. This remedy is happening nation-wide—people who would otherwise have bought a home are renting. In other words, supply and demand addresses the need, not government intrusion that in most cases makes a problem worse by creating self-defeating, unintended consequences that simultaneously drain taxpayers of their hard earned money (as they pay for studies, boards, salaries, extra property taxes, and so forth, to fund the planners’ schemes).
To be fair, the City of Bozeman admits its strategy flopped, though you can be sure affordable housing as social policy remains on the agenda. Commissioners and planners think the problem with their affordable housing plan was simply that a recession happened, a matter of bad timing, and that a time will come down the road when they can start fooling with mother nature again, distorting the housing market’s natural course. This fooling around, though, is foolhardy—demonstrably. The real problem is activists working at the federal and local level to enact their visions of how things ought to be, when individuals, universally and naturally, arrange their lives on their own as free people, and amount to, collectively, a force of nature—a fluid ecosystem that should not be upset, lest bad things happen.