Housing Madness!

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The September
7th weekend edition of my struggling Philadelphia newspaper, The
Bulletin, features a page-one story entitled “Affordable Housing
Rally Treads On City Hall.” According to the story “hundreds of
activists (including an organization calling itself the ‘Philadelphia
Campaign for Housing Justice’)… demanded action from City Council
to… require market-rate housing developers to either include affordable
housing in their construction plans or pay for off-site affordable
housing… for households earning less than 50 percent of the area
median income, or $36,000 for a family of four.”

Apparently
such coercion is standard practice in the big city, but could anything
be more ludicrous than developers being forced to build what they
don’t want to build, i.e., housing for which there is no legitimate,
free market demand? Obviously they will be forced to lose money
or construct substandard units — just because low-income folks who
can’t afford to rent at market prices believe they have an imagined
right to do so — at the price they prefer.

Actually, I’m
a tad surprised that the demands were limited to rental units. As
long as they’re making demands, why not extend them to homes? Why
not demand reduced prices for new cars, fancy cell phones or 60-inch
televisions? Obviously, people with little money can and should
live without a new car, cell phone or huge television. In the case
of housing, the solution is that they are supposed to rent in an
area where they can afford it. If that means moving to a
smaller city or town, I say: too bad.

Hey, I’d love
to have a penthouse in Times Square, but I can’t afford it — so
I rent where I can afford it, 100 miles away. On the
other side of the housing coin, a year ago I could’ve taken out
some nutty loan and risked everything to buy an overpriced house
— but that would have been imprudent — a word which has apparently
disappeared in the 21st century.

Doubtless many
cousins of these agitators for “housing justice” are subprime borrowers
clamoring for government help, now that — surprise! — they couldn’t
really afford the houses they bought over the last five years. Their
enablers, media and political dolts like Senator Dodd, pontificate
that our money-grows-on-trees government should rush to help subprime
borrowers keep their homes. Dodd, chairman of the Senate Banking
Committee, recently stated that “we may have as many as a million
to three million people who could lose their homes. I urge the administration
here to continue doing everything necessary to see to it that people
can keep their homes.”

But why? Why
should anyone, or any entity, even consider bailing out people who
made bad purchases — whether the transactions were dishonest, foolish,
imprudent, or just plain dumb? Sure, I feel sorry for the few naïve
home buyers who were sucked in by the lowest interest rates of their
lifetimes, who were assured by unscrupulous lenders that they could
handle the payments, that the value of their homes would only go
up, and that their ARM loans could “probably” be converted to fixed
loans after a couple of years.

On the other
hand, I have no pity for those who took out “liar” or “ninja” loans
— borrowers who lied about their incomes or had no income, job or
assets. These folks were in cahoots with their lenders (who cared
only about their fees, secure in the knowledge that their shaky
loans would be passed on to others). Both parties to these transactions
knew that they shouldn’t be doing what they were doing, yet did
it anyway, out of avarice. The borrowers knowingly made a choice
and took a chance: “If it works out, fine. If not, I’ll file bankruptcy
or just give the keys to the bank.” Now that they’re going to lose
their gamble, they’ve opted for a whining jag instead. I say: too
bad.

Again, why
should any distressed homebuyer get bailed out? Because a home is
part of the silly “American dream”? Baloney! What is so darn wonderful
about going into massive debt to buy a depreciating asset, one that
increases in value only due to the excessive money printing of the
Federal Reserve? What’s so dreamy about new neighbors who play loud
music all night? About appliances that have to be replaced? Lawns
that need to be mowed? School and real estate taxes that have to
be paid every year? Snow that has to be shoveled? And what if you
lose your job and can’t make the payments? What if you have to move
quickly and can’t find a buyer? What if the neighborhood deteriorates?
If your house gets flooded, or smashed by a hurricane and your insurance
doesn’t cover it?

The insane
national mania over home buying during the last few years has set
a new madness-of-crowds bar, and led in a straight line to the current
predicament, although this is rarely noted by media pundits. Alan
“The Maestro” Greenspan is largely to blame, of course, since in
early 2004 he touted the savings potential of ARMs over fixed mortgages,
adding that “American consumers might benefit if lenders provided
greater mortgage product alternatives to the traditional fixed-rate
mortgage.” Some maestro — promoting irresponsible lending and borrowing
while simultaneously lowering interest rates below even the preposterously
petite official inflation rate, which meant that the Fed was literally
giving money away.

Returning to
the point of all this: buying a house entails risk. It is a serious
commitment. It isn’t a guaranteed sure-fire investment, or something
to rush into because suddenly, unexpectedly, it looks like you can
afford it. It isn’t “if I get in trouble the government will help
me.” It isn’t “I didn’t know this would happen. It’s not my fault.
I shouldn’t have to suffer. I deserve a free pass. Someone else
should pay for my problem. Boo-hoo.”

Friend, you
don’t even own that house until it’s paid off. The bank owns it.
By the time you pay off your 30-year mortgage your house will probably
need a complete face-lift. So you can count on borrowing more money
when the happy day arrives. Now, assuming investment of the difference
in monthly payments between home ownership and renting, some financial
models show that the latter compares quite favorably. If true, then
the entire American Dream myth falls into pieces. Renting provides
cash liquidity, flexibility, no maintenance, no hassles. Noisy neighbors
can be dealt with by complaining to management, demanding a different
apartment or that the lease be broken, or simply moving out when
the term is up.

There’s a well-known
Aesop’s Fable entitled “The Grasshopper and the Ants.” The former
has a grand old time fooling around all summer and autumn, not worrying
about anything, while the ants are busy stashing away food for the
winter. When the blizzards arrive, the grasshopper, starving to
death, asks the ants for food, who tell him to get lost. (Of course,
in the Disney version, a 1930′s cartoon, the ants feel sorry for
the grasshopper and take him in.) The tale has great significance
today, now that so many irresponsible or risk-taking grasshopper-borrowers
are approaching winter. Should the responsible ant-renters be forced
to help them out? I say NO… and too bad.

September
10, 2007

Andrew
S. Fischer has worked in various fields.

Andrew
S. Fischer

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