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  • How to Solve the Housing Problem: Latest Mortgage Proposals

Economy

12 Nov 2008

How to Solve the Housing Problem: Latest Mortgage Proposals

  • By Bill Conerly
  • In Economy
  • 2 comments

Allan Meltzer is the latest to develop "a plan to rebuild the housing market."  Although I have tremendous respect for Professor Meltzer, he don't think his plan addresses the real problem.  He writes, "The main problem in Britain and the US is an excess supply of unsold houses."  More accurately, the main problem is an excess supply of housing units of all types.

Here's a chart of the unsold homes Meltzer is worrying about:
VacancyOwned

But there's another excess supply:  rental units:
VacancyRental

(data for both charts come from the Census Bureau.)

A mortgage-focused plan to help people buy homes can reduce the first vacancy rate, but only by worsening the second.  Those people who might buy a house are currently living somewhere.  If we move them out of rental housing into owned housing, we aggravate the high rental vacancy rate.

Owned housing constitutes about two-thirds of the housing stock, with rentals one-third.  So to reduce that owned vacancy rate down to a more reasonable level, changing the vacancy rate by one percentage point, we would add about two percentage points to the rental vacancy rate.  Rental vacancy is already pretty high, and another two percentage points would clobber it.

So what's the solution to the excess supply of housing?  Fire would be one solution, but we don't use that too much outside of Detroit.  The other solution: a larger population.  We add about one percentage point to our population every year, so we'll eventually grow our way out of this problem.  But there are no fast solutions.

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    Comments

  1. pruepraizy
    December 9, 2008

    The site provides important information for business people.
    *************************************************************
    pruepraizy
    MLS

  2. home equity loan
    January 29, 2009

    Thank you so much for focusing on the solution not the problem by blaming the people in the industry.

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