The New York Times observed on August 22nd that homeownership may no longer be the wealth creating engine that elevated and enriched America's middle class for generations while enhancing both economic growth and consumption.

"Housing Fades as a Means to Build Wealth, Analysts Say"  


Tragedy from Hubris

The NYT's belated conclusion is fascinating because it completes the modern Greek Tragedy that was the Housing Bubble.

The origin of housing's ascension was a well-intentioned, coordinated, public policy initiative formulated in 1994.  (See NHS article)

The strategy was based on the Government's observation that homeownership was a powerful mechanism for building wealth and elevating middle-class families economically.  Beyond the benefits which accrued to individual owners, society as a whole seemed to be enriched by rising homeownership.  Employment, consumption, business formation, tax receipts, crime rates and GDP all seem to improve at the neighborhood and national level as more Americans owned their home.

Below is the excerpted rationale justifying the creation of The National Homeownership Strategy codified in 1994:


Why Homeownership?

Most scholars, public policy makers, industry analysts, and civic and community leaders agree that supporting homeownership is good for America, and will produce four fundamental benefits:

1.  Homeownership is a commitment to personal financial security.  Through homeownership a family acquires a place to live and raise children and invests in an asset that can grow in value and provide the capital needed to start a small business, finance college tuition, and generate financial security for retirement.

2.  Homeownership is a commitment to strengthening families and good citizenship.  Homeownership enables people to have greater control and exercise more responsibility over their living environment.

3.  Homeownership is a commitment to community.  Homeownership helps stabilize neighborhoods and strengthen communities.  It creates important local and individual incentives for maintaining and improving private property and public spaces.

4.  Homeownership is a commitment to economic growth.  Homeownership helps generate jobs and stimulate economic growth.  The design, construction, and rehabilitation of homes employs local labor and uses a vast array of American-made products and services.  Homebuilding has often led the economic recovery form national recessions due to its strong job multiplier effect and because increased housing starts and home sales represent renewed economic confidence.

...

Homeownership creates economic prosperity for families and communities and acts as a dynamic generator of economic growth.  Every new home creates 2.1 jobs directly related to construction, and many more jobs through increased demand for household goods and services.

Because homebuilding and homeownership contribute to national prosperity, the expansion of homeownership in this Nation has been supported for many years by public-private partnerships.  From the Homestead Act in 1862 to the GI Bill of Rights in 1944, key Federal Government innovations such as the Federal Housing Administration (FHA), Department of Veterans Affairs (VA) home loan guaranty program... Fannie Mae, Ginnie Mae, Freddie Mac, and others have mobilized private capital to enable the average working family to buy a home with little or no down payment.


An American Tragedy

The hubris upon which the Housing Market was constructed was the assumption that benefits which had accrued to homeowners for generations would continue if mortgage underwriting requirements were loosened by Government edict so as to allow millions of the underprivileged to access the Golden Goose of homeownership.

The Government's rigid understanding of homeownership defied the dynamic nature of markets and the immutable laws of economics.   By changing market conditions, increasing demand, triggering a rapid and accelerating rise in prices, and embracing so-called innovative, affordable mortgage characteristics, well intentioned politicians seeking to realize a social agenda fundamentally distorted the housing market.   

Today, according to the NYT, the wealth creating Golden Goose is dead.  Benefits that accrued to homeowners for generations, which the Government attempted to bestow on 8 million additional families, have evaporated.  The economic synergies that were supposed to flow from higher homeownership and create national prosperity have instead transformed into a self-perpetuating nightmare worthy of any Greek Tragedy.

Hubris created The Affordable Mortgage Depression, and equally misplaced confidence in housing market subsidies and foreclosure mitigation efforts will perpetuate this American Economic Tragedy for years to come.