Daniel Hertz, writing on CityLab.com, presents an interesting idea. The title of his article, “Housing Can’t Be Both Affordable and a Good Investment,” summarizes his position. And, while he makes a compelling argument, he misses the fundamental issue.
Hertz acknowledges that the real estate lobby exerts political pressure to maintain laws, such as deductions for mortgage interest, that benefit home owners. This promotes home ownership, and thus drives up the demand. As demand increases, home values also increase, making home ownership a good investment. This benefits the real estate lobby, as well as home owners.
But, as home prices increase, lower income individuals are less able to afford the purchase of a home. What is good for some is not so good for others. Certainly, when prices for a value rise, then that value becomes less affordable for lower income individuals.
Hertz concludes that,
We say we want housing to be cheap and we want home ownership to be a great financial investment. Until we realize that these two objectives are mutually exclusive, we’ll continue to be frustrated by failed and oftentimes counterproductive housing policies.
Hertz is correct that these policies conflict and are counterproductive, but he fails to identify why. Politics drives policies to promote both home ownership and affordable housing. Competing special interest groups promote competing policies. And politicians, ever eager to be everything to everyone, attempt to satisfy these mutually exclusive demands. In the end, nobody is happy or satisfied.
The real solution to these conflicting goals is to get government out of housing and let the market operate without arbitrary prescriptions or proscriptions. Instead of promoting affordable housing or encouraging home ownership, the government should be protecting the freedom of individuals to create, use, keep, and trade values.
We don’t have debates over whether technology should be affordable or a good investment. We have, in general, protected the freedom of technology companies to innovate and offer new values. In response, they have offered us smart phones, flat screen televisions, Kindles, iPads, and countless other gadgets. And there are many options for each of these gadgets. Each of us is free to choose which of these offerings, if any, satisfy our needs and desires. The market has been allowed to operate, and we have an abundance of choices.
When it comes to housing, the market hasn’t been allowed to operate. Neither producers nor consumers have been free to act on their choices. It has been a battle between competing interest groups, each trying to influence political decisions.
Housing can be affordable and a good investment. But before that can occur, we need to get politics out of housing.