I dream of living in ... a World Without Dictators! I'm a Libertarian Paternalist in Slovakia - Freedom with Responsibility - 10% of income into your own Pension; Tax Loans for education, health, housing; now supporting Employment Maximizing Companies!

blog posts on immigration at The Truth Laid Bear

Too Many Houses

From Fabius Maximus ( Sep 8) :
<t>The core of the housing crisis is overbuilding, which has created an excess supply of housing units (broadly defined). Today there are roughly 4 - 5 million vacant housing units above historical average rates (as a % all units). For example, the Census Department’s Housing Vacancy Survey shows that 2.8% of owner-occupied units (i.e., not rentals) are vacant, almost 2x the historical average of 1.5%.</t>

This is still the core housing problem, which is the core of the Mortgage Backed Security mess, which is the core of financial problems, which is the core of the coming recession.

Later FM adds:

Vacant units in Q2: 12,719 million.
…For Rent: 4,008
…For Sale: 2,169
…Undecided: 6,542
…Awaiting oc: 1,145 (awaiting occupancy, which will in turn vacant another unit)

** There are other types of vacant units, but these are the important ones.

---

Great headline — too much supply of housing certainly means lower prices.

I’d argue that the gov’t needs to encourage MORE home-ownership, to help reduce the unbought units:
accept more Green Card immigrants who have (or can get) $20 000 k as a down payment on a house purchase, offer a new GI-Housing bill to all returning Vets, up to some $40 000 as a gov’t second mortgage loan, 5 years of no interest. (Note that it’s a loan, not a grant, so the long term cost to the gov’t is admin cost and foregone interest; perhaps set the interest at 3% like student loans).
Offer gas-use reduction downpayment loans to folks willing to move closer to their work (at least 5 miles closer).

The gov’t could also buy more homes, and voluntarily relocate slum dwellers willing to leave their slums (perhaps for lower rent for 5 years?) — and then destroy the slum housing. (Altho this might spread crime.)

The point is to get a lot more buyers buying homes. While the excess supply will keep prices low, and reduce any appreciation, the real disaster for the banks is the uncertainty of any value — the bottom hasn’t been reached yet. Investors don’t want to invest until such bottom.

Finally, the ‘house building’ industry will remain in terrible shape until the excess supply is reduced. It would be an excellent time for all local, state, and fed gov’t to be repairing/ building roads and bridges and infrastructure. Not ‘make work’, but previously deferred work. The construction industry needs as much or more help as the banking industry — and repairs need to be done sometime.

Fabius Maximus replies: Some of this misses my point.

“I’d argue that the gov’t needs to encourage MORE home-ownership. … The point is to get a lot more buyers buying homes.”

There is an excess of units over households. What you are referring to is moving renters into owners, which policy is one of the things that got us into this mess. It is however irrelevant to absorption of the excess vacant housing units.

----

Here's the new paradox of low income housing -- even though it was gov't effort to help low income folk afford housing through Fannie Mae guarantees on mortgages, which were then securitized, the best way to reduce the problem now is ... for gov't to help low income folk actually buy houses.  To get vacant houses occupied by owners.

Posted by: TomGrey at 10/21/08 01:54 | link | comments (1)
economics

The Crisis in banking -- too many banks

I am increasingly convinced that the financial industry, like the newspaper industry and even, temporarily, the housing industry, suffers from too much supply.

The Financial crisis is too many houses built with the expectation of being sold for too high a price.
Solution, lower the price.

Gov't policies: incentives to buy houses, penalties for not renting/ selling houses.

I've been spending gobs of time at Fabius Maximus lately.  Like on this thread of reading material:

This was a big week for news and analysis about our financial crisis.  Here are some you may have missed.

1. “Stricter regulation of business sought, Americans say“, LA Times, 15 October 2008 — A survey finds that nearly 70% of Americans in each of a wide range of demographic categories say the lack of controls is responsible for the nation’s economic problems.
2. “Ship Rates Plunge as Credit Freeze Strands Cargo, Demand Slumps“, Bloomberg, 15 October 2008 — A possible “air bubble” in the global trade bloodstream.
3. “From Plan A to Plan G“, Brad Delong (Professor of Economics at Berkeley), Guardian, 16 October 2008 — “The US has tried to stave off depression in half a dozen ways. Will partially nationalising America’s banks do the trick?”
4. “Let’s Get Fiscal”, Paul Krugman, op-edin the NY Times, 17 October 2009 — It’s time for the government to spend lots and lots of money.
5. “We had to burn the village to save it“, posted at the blog London Banker, 17 October 2008 — “There is no free market when the government owns the actors and sets the terms of transactions. There is no village once it has been burned to the ground.”
6. “Amid Pressing Problems, Threat of Deflation Looms“, Wall Street Journal, 28 October 2008 — Suscription only; here is a open copy.

---

To FM: While I prefer the faster re-structuring of Sweden over Japan (thanks for prior links, perhaps you’d like to link to your posts on those experiences more often. I consider them the best guides for ‘best practices’ yet known), even 10-year stagnation in Japan did avoid a depression.

But more posts with a ‘key chart’ might help. (Not Brad DeLong’s interesting S chart; too different and complex from other analysis, even if true, of which I’m not convinced.)

#1 more folks want more regulation — McCain, like Bush, has been lousy at defending the “Market”; Obama’s success at blaming the Free Market, instead of lousy, political based Gov’t. Supported Enterprises, has been very depressing. (Didn’t read)

#2 is really important — the IMF / Fed should be offering direct letters of credit, at a higher than prior cost, to shippers who’ve been successful in the past. Bypass the clogged up banks.

#3 Brad’s A-G plans is perhaps the best summary I’ve seen of the recent past, what decisions were taken, policies tried, and the theory behind them. On recession he states: But the economy fell toward (if not into) recession, and interest rates had already … lost … vigour.
(So Brad isn’t willing to fight the ‘in recession’ or not definition battle, which is the position I’ve had for awhile). Only at plan G does he call for fiscal expansion, as compared to his adoration object…

#4 Nobel prize winning big Bush critic (reason he won?) Krugman. Whom I now agree with that fiscal stimulus is needed — but he’s faster to criticize McCain than to state we should be building nuke power plants, and wind power, and solar power, and do more drilling. He’s also right that mortgages should not be bought at full price — although he fails to state what percentage. (For me, 50%, or the ratio on recent foreclosure auctions in that area. No foreclosures, no gov’t purchases).

#6 was merely another anti-deflation screed, with unconvincing details about the Fed’s new tools to avoid deflation.

#5 Was a cool, implicit don’t give more gas to the Big Brain Financial arsonists who burned down the prior system.

Missing is the idea that up to half of the whole ‘financial industry’ is excess waste — perhaps a lot like the newspaper industry. The real economy doesn’t need that many financial services.

Posted by: TomGrey at 10/21/08 01:38 | link | comments (1)
economics

Fantasy Sarah Palin opening 2 minutes

Good Evening.

Senator McCain and I are not just running against the Obama-Biden ticket.

We are running against the Democratic Party.

We are running against the Media, which only tells a little more than half of the truth.

We are running against the elites, the critics, the pessimists, the intellectuals, and the intellectually dishonest.

We are running in favor of real reform, not just a cosmetic change of face with the same policies, the same porkbarrel earmarks, but real reform.  Even, sometimes, against our own party.

When it comes to reform, we have the experience.  Senator McCain was one of the most outspoken opponents of Pres. Bush on many issues: on how to win in Iraq and against even the appearance of torture or bad treatment of prisoners and against Guantanamo bay. In successful bipartasnship laws to reduce the influence of money in politics,  to improve the schools.

For myself, as a Republican mayor of one small city in Alaska, I fought for reform in the State capital; I fought against Big Oil and unethical officials; I fought against corruption of my fellow Republicans – I fought, and I won.  I did reform Alaska, I did stop the Bridge to Nowhere, I did get a better deal for Alaska residents AND agreement by the oil companies to build a new pipeline to provide domestic energy.

When it comes to reform experience, with all due respect to the three senators – none of them have fought against their own party to stop corruption as successfully as I.

On the Bridge to Nowhere, for instance, when Senators Biden and Obama had a chance to vote against the earmark – they voted in favor of pork as usual.
 

In tonight’s issues, I’ll be highlighting Republican values that favor America patriotism over pessimism, that favor hard work and responsibility rather irresponsibility and big government, that favor traditional Western Civilization family values rather than radical anti-Christian secular consumerism.

 But I also want to talk about 4 kinds of truth, only 2 of which the media pays much attention to.  Truth that makes the Democrats look good, but not truth that makes Democrats look bad.  Truth that makes Republicans look bad, but not truth that makes Republicans look good.

Now Republicans are not perfect, but very definitely neither are the Democrats, although the media seems to be hiding that fact as much as possible.  On Iraqi Freedom, you all know -- when there were huge problems, and the terrorists were winning, there was lots of publicity.  Now that surge has created a clear, but still long path to victory, the media is almost quiet.

On energy prices -- Republicans have wanted more nuclear power, more oil drilling, more real production.  Democrats have opposed these for years, for decades.  And they still oppose it.

The housing crisis was basically created by the government pushing banks to give loans to risky home buyers -- but using the Government Sponsored Enterprise of Fannie Mae to buy all the risky loans, so the banks could make profits.  OK.  If the government is going to take the risk, but the banks get the fee incomes, of course the smart banks will do as many loans as Fannie Mae will take. 

Fannie Mae was never the free market; the government taking the risk is not the free market.  Maybe Senator Obama doesn't understand that -- maybe he's so ignorant that he thinks government guarantees are the free market.  Or, maybe he's just being dishonest because he wants more government.  Believe me, only an ignorant or dishonest politician would say Fannie Mae, and it's problems, are the free market.

Fannie Mae needed reform in 2003, when President Bush tried and was told by Democrats that there's no problem. It needed reform in 2005, when Senator McCain submitted a bill to avoid the housing problems, but in a committee vote, all the Democrats voted against responsibility.  Washington needs reform.

America is the greatest country on earth, and Republicans are proud of that – but the Washington DC mess is not something to be proud of.  It needs reform.

I have far more experience in reform than either Senator Biden or Obama.

Posted by: TomGrey at 10/02/08 21:57 | link | comments
economics