Must we destroy housing to save it???

July 31, 2008

(copyright)

The WALTHER REPORT

By Tony Walther

I think there’s a scene in The Grapes of Wrath where a hungry man is kept from eating oranges that are going to be thrown out because of low prices. And the book also tells of dumping milk when thousands are going hungry. Food was dumped rather than being allowed to flood the market and further depress prices in the Great Depression, and thousands went hungry in the process.

Using that logic, or maybe the logic of the officer in Vietnam who explained, “we had to destroy the village to save it,” an article in the Wall Street Journal presents a plan to deal with the stagnant housing market and home mortgage crisis. It calls for lenders to demolish new houses that never sold or have been foreclosed upon and won’t sell. In that way a new demand for housing would be opened up, relieving the stressed market. At first I thought this was just said to make a point, a bit of hyperbole, but then I realized the writer was quite serious, quite, he got the idea out of The Economist, published in Britain (but talking about America).

The writer cited the fact that Uncle Sam has already invested trillions in mortgage related bailouts.

Well, for the most part, or for the whole part, I think the bailouts are wrong. If we have free enterprise, then we need free enterprise (although it needs to be fair enterprise as well). There needs to be some regulation to prevent imprudent and outright reckless practices that resulted in the home mortgage crisis. And certainly appropriate government agencies, local, state, and federal, should go after fraudulent practitioners in the mortgage trade.

If it is to be that some houses will never be lived in, can never be sold, perhaps demolition would be the way to go. It beats blight. Also, in many cases, new housing tracts are built over good to prime agricultural land. We’ve all seen this, but I personally witnessed the strangest thing, housing tracts in Salinas, Ca., being built on prime land (the world’s vegetable capital) right next to packing houses. Now if houses in a place like that were not being sold, demolishing them might not be a bad idea, the world food crisis being what it is.

What it seems we need, though, is to go back to the older method of financing housing, where a reasonable down payment is required, and some good evidence that the borrower should be able to repay the loan presented (there is always some gamble for both parties).

Of course if we do that we could wind up in the situation we were in decades ago when it became nearly impossible for a vast number of people to ever even think of buying a house.

Through the years there have been government programs, FHA, GI loans, Farm Home loans, to name a few, that have helped, they should be continued.

A major problem over the years was the lack of “affordable housing.” Builders like to do expensive homes if there is a market, because a lot more money can be made.

But it would seem that local governments, in conjunction with state and federal, would do well to promote affordable housing. It in turn promotes community pride, discourages crime, and strengthens the tax base.

The problem is figuring out a way to provide “affordable” housing, but not simply low cost homes that wind up being occupied by folks who do not have the resources or even desire to care for them.

I think there should be government subsidized housing, but there needs to be safeguards as to lending and borrowing requirements, and quality construction needs to be required.

There’s probably no easy way out of the mortgage crisis, but proper government oversight to prevent fraud and abuse in the future, and market forces themselves over time should bring things back to a more even keel.

Homes are to live in. They are to raise families in. They should be a long-term and relatively safe investment. They should not be constantly bought, sold, bought, sold, like commodities on the floor of the mercantile exchange.

Stability beats instability for enjoyable, healthy, and productive individual lives, and for our nation.