For over 60 years, the Federal Government has played an important role in making the American Dream of homeownership a reality for millions of families.  It created the Federal Housing Administration (FHA) and Government-sponsored enterprises such as Fannie Mae to enhance the availability and affordability of home mortgage funds.  HUD and other Federal agencies have provided billions of dollars in grants and loans to support affordable home construction and rehabilitation and to aid low- and moderate-income families in buying their first home.  Incentives for homeownership have been written into the Nation's tax code. - HUD Urban Policy Brief, 1995


Today the single best way that the FHA, HUD, Fannie Mae and Freddie Mac could accomplish their stated goal of "affordable housing" would be to exit the market and let housing prices collapse.

The Government has been pursuing the professed objective of affordable housing for almost a century.  These efforts have grown over the decades, become increasingly intrusive and more complex.

It is common sense that subsidizing homeownership increases demand.  Expanding demand, especially when accomplished artificially and through increasingly leveraged financing options, causes valuations to rise.  The Government’s effort to create “affordable housing” has been making homes less affordable for decades.

If politicians wanted affordable housing they would let home prices fall.  Yet for the past two years every public policy response has been designed to prop up values.  These actions are in open contrast to the purported goal.  Yet, bizarrely, politicians argue their current programs ARE designed to increase affordability.

Apparently the Government’s definition of affordable housing is the use of excessive leverage to buy an overvalued house with federally mandated credit availability, mortgage rate subsidies and down payment assistance.  Both common sense and empirical evidence dictate this form of homeownership is not sustainable.

In reality, affordable housing may only be defined by undistorted, market-determined prices which are restrained by the realities of mortgages which require a reasonable down payment, the servicing of unsubsidized interest rates and are available based only on creditworthiness.

Not only are more cheaply priced homes genuinely more affordable, ownership of such properties is also more sustainable.  Yet the Government continues to employ initiates that attempt to prop up prices. 

The wonderful thing about the Housing Bubble's collapse is that many Americans may get to experience the joys of truly affordable homeownership for the first time in their lives… if only the Government would get out of the way.