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