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November 20th, 2009

Supporting Housing, But at What Cost?

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My colleagues and I at HSH have asked and debated over this question for most of the year: “To what cost are we willing to promote home ownership?” As close to the market as we are, we fully recognize the value of home ownership. However, our lawmakers have steadfastly promoted it above any other option despite a housing crisis and a soaring national budget. The question is: “When is enough enough?”

Washington has developed multi-billion dollar programs to modify and refinance troubled mortgages, subsidize mortgage rates, we’ve thrown massive lifelines to Fannie Mae and Freddie Mac, a $10 billion homebuyer tax credit extension, and the list goes on.

A new report from the Congressional Budget Office (CBO) sheds some light on just how much money lawmakers have dedicated to home ownership over renting:

This year, the government devoted four times the amount of budgetary resources to homeownership as it devoted to rental housing, or around $230 billion in spending and tax breaks for homeowners compared to around $60 billion for renting, the CBO reported.

The report notes that, until recently, most government support for homeowners came in the form of tax breaks that don’t require government spending but result in the government collecting less in taxes than what might be owed.

But recent efforts to help stabilize a fragile housing market means that government spending now accounts for around half of federal support for housing, including a $75 billion tab for the government’s loan modification programs and taxpayer money to keep Fannie Mae and Freddie Mac in the black. That doesn’t include aid that the government has agreed to give to state housing finance agencies through Fannie and Freddie, or any aid that the Federal Housing Administration may need in the future.

For years, many have widely criticized Congress’ demand for home ownership as a contributing factor to the recent housing bubble. Those same criticisms are once again beginning to filter in as critics claim Congress is inflating another bubble before we’ve had time to recover from the first.

Let’s put these numbers into context. It’s worth noting that the $230 billion spent this year alone (leaving out the cash spent on Fannie and Freddie, FHA, Subsidized rates, HFA, etc.) could have been used to buy 1.29 million homes outright. If that was the case, the government wouldn’t have to worry as much about high foreclosure, re-default, or delinquency rates.

Is too much money being dedicated to housing? Is it time Washington promoted renting with the same vigor they have for owning?

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4 Responses to “Supporting Housing, But at What Cost?”

  1. ilona@israel Says: November 22nd, 2009 at 7:35 am

    It’s another strange move of the Goverment. I don’t understand such actions.

  2. Tim Manni Says: November 23rd, 2009 at 11:24 am

    Ilona,

    Are you in favor of more rental programs?

    Thanks for commenting,
    Tim

  3. cell phone treasure Says: November 25th, 2009 at 4:42 pm

    Promote ownership? Why? You would think that anyone who can afford a house would buy one anyway?

  4. Tim Manni Says: November 30th, 2009 at 11:52 am

    Cell Phone Treasure,

    You would think that would be the “normal” way of thinking…guess not.

    Thanks for commenting,
    Tim

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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