Conservatives are well aware of how the Community Reinvestment Act, along with ACORN harassment, has pushed the banks into making loans to bad risks.  And we also know how the government guarantees for Fannie Mae and Freddie Mac encouraged investors to take huge risks.  Thomas Woods, Peter Schiff, and others have discussed how the Federal Reserve created the volatile credit bubble.  Howard Dean, Barney Frank, and Maxine Waters have called for more regulation. But further examination reveals how governments interference, not the free market, created the conditions for this crisis.

The call for government measures to increase the availability for affordable housing is contradicted by the fact that before the recent push for this intervention, home price to income levels were actually manageable for most people.  The Heritage Foundation and the New York Times agree that during the 1980’s, the monthly home cost to personal income ratio’s were actually dropping throughout the decade.  This was  do in part to a decline in mortgage fees and rising levels of personal wealth and income. 

Ronald Reagan’s tax cuts and resistance to government overbalancing helped make housing available to more people.  With people being able to keep more of their own hard earned money, they had more to make down payments.    Only in a few metropolitan areas did housing costs outpace income.

On these area’s Thomas Sowell reports:

these places where local government restrictions on land use, and other impediments to building, have driven the cost of houses and of apartment rents to levels that take as much as half  of the family’s income just to put a roof over their heads.  For the country as a whole, however, home buyers have paid no more than the old-fashioned standard of 25 percent of their incomes for housing in any year since 1985.”

 So if this is the case, why the push for “government sponsored affordable housing?”   The motivations were political, not practical.  Before the credit bubble, buying a house was considered a reward for achievement, success, and discipline.  But home ownership became a civil rights issue, and a matter of social economic justice.

The Greyfalcon agrees that historical housing discrimination does have an undeniable impact on wealth disparities between the races .  During from the 1940’s to the 1960’s, red lining and other racist practices kept blacks from using the GI bill to buy homes in locations that yielded higher home and property values.  However, using the government to try and correct this doesn’t work, because the people this “assistance” goes to are typically not the people who were wronged.

And what allowed the young people of the 1980’s to gain wealth through their homes was the fact that their income levels were rising higher than their payments.  This was partly because businesses were freer to compensate these young new home owners for their talents.  at the end of Reagan’s first term, private sector investment had increased by 25.4%.  That investment found its way into the pockets of young Americans, giving them the means to buy homes not on borrowed time, but on the solid foundation of their own prosperity.

 California’s implementation of “open space” and rent control policies severely restricted the available land for housing development, artificially driving up the housing prices.  The 1970’s were when open space restriction really took off, but it’s effects emerged in full during the last decade.  Open space policies allow lawmakers to declare areas off limits for development. They often use environmental concerns and saving farmland as the excuse.  And the rent control has allowed people who normally would need roommates due to their lower incomes to rent more space, But that distorts the market value of the land, causing scarcity.  More apartment buildings need to be built, and more land declared “open space protected”, thus driving up land costs.

From 2000 to 2005 the national median housing sales price of single family homes rose from $143,600 to 219,600, almost 33%.  But in the two major California cities, Los Angeles and San Diego, the increases were 110% and 127% respectively. These prices resulted in monthly costs that far out-paced the increases in median gross incomes.

By 2005, the median income was 7.5 times the median family income their, taking over 40% of the family’s income to pay off the mortage.   In San Francisco the avergage home took close to 50% of the median income.  Before the advent of “smart-growth/open space”, the median home cost was only around 2.3 times the median incomes for these cities.

The free market alone cannot cause these changes.  Eventually, no matter how “greedy” the builders or investors are, somewhere along the line it becomes impractical to keep driving up prices for houses people cannot afford. 

Unless the government promises to keep the whole thing going.

As of 2005, for the first time Americans spent more than they saved.  This matched with the outrageous increases in home prices, should have been a sign for holders of mortgage backed securites.  JP Morgan Chase did make some adjustments to their overall risk management strategy.  Others should have followed suit, but asusmed the government wouldn’t let the bottom drop out. Efforts were made to investigate the viabilty of Fannie and Freddie, the holders of a great number of the nation’s failed mortgages,  but Barney Frank, Dick Durbin, and Maxine Waters accused the Bush inquiries into this matter as “having ulterior motives”. 

Maxine Waters said the institutions were doing just fine “under the outstanding leadership of Franklin Rains”.

We smell a rat, and that is all we will say about that.

Common sense tells you that when home prices are going while  personal income and saving are going down, then people many people will  not be able to afford a $500,000 ranch on 10 bucks an hour. 

But in the name of “fairness” the Democratic leadership, along with many Republicans, allowed government perpetuating the cycle that lead to the Great Collapse.

Hey Barry, it wasn’t Jamie Dimon that caused this, it was you and your buddies.

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