Today in Las Vegas, President Obama will take another $1.5 billion in taxpayer money and let it ride another spin on the roulette wheel otherwise known as foreclosure assistance. This time, however, he’s not even bothering to send the money to homeowners; its all going to state governments.
That’s correct, he’s sending a huge check to select state governments to use in almost any manner they choose, as long as it offers some pretense at propping up the housing market.
The assistance will be targeted at those states that have seen at least a 20% decline in home prices. Subsidizing states because their housing markets are getting more affordable almost makes one yearn for the days when we subsidized states because their housing markets were too expensive. What we are really subsidizing is those states whose destructive land-use policies contributed to the magnitude of the housing bubble. Basic economics tells us that as supply becomes more inelastic (think growth boundaries), prices become more volatile. It’s bad enough that most of our housing subsidies, both homeowner and renter, have ended up going to states that have crippled their housing markets, but now we are sending them a big check to reward such behavior.
Washington needs to end its constant attempts to prop up the housing market. The only viable solution to an over-supply of housing is a further decline in prices. Most of the worst-hit areas, such as California, do not lack for families wanting to buy homes. They lack a supply of homes at affordable prices, which would be solved by letting prices fall.