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Since 1977, when Jimmy Carter signed the Community Reinvestment Act, the government has tried to make housing more affordable for low-income families by subsidizing homeownership. Bill Clinton and George W. Bush continued to emphasize this as an important policy goal with legislation such as The American Homeownership and Economic Opportunity Act of 2000. This finally culminated in a financial meltdown because the government had lent too much money to people who couldn’t pay it back. These policies precipitated the crash; the housing market would have remained stable without interference.
The graph above charts the changes in median homeownership rates over the past ten years as reported by the Census Bureau. A brief look demonstrates the impact of government measures to increase homeownership: basically no net change occurred. Millions of dollars spent, loaned, and lost, and nothing changed. After the real estate crisis, we have less money and less confidence in the stability of the economy.
Even worse, three researchers from the New York Fed just published a study that suggests the homeownership rate is actually much lower than the Census Bureau reports. The Census Bureau includes homeowners in a position of negative equity—when debt exceeds assumed property value. Because of government induced sub-prime mortgages, many homeowners face this difficulty. The new study counts these troubled homeowners as renters, because eventually debt will force them to rent. Looking at the data from this perspective reveals that the actual rate of homeownership is 5.6 percent lower than the Census Bureau estimates. The outlook is bleak; the study concludes by explaining how current policies may result in even lower homeownership rates.
Policies that attempt to raise homeownership, at best, have been ineffective, and at worst, they have been extremely disruptive to market stability. The housing meltdown harmed millions of hardworking Americans, and the economy is currently struggling with 10 percent unemployment rates. The government committed a classic error: they failed to consider long-term effects and unintended consequences; they hurt the very people they intended to help.