Perspective on the Mortgage Crisis
Michael Hill's op-ed in the Wash Post on February 11 provided a much needed perspective on our current housing market crisis. While the current public debate has focused on the crisis of credit posed by subprime mortgages, Hill argues that there has been too little focus on the underlying problem of housing affordability in America's high-cost markets.
Finally, someone has hit on a key issue that too many commentators have preferred to ignore: subprime mortgages were partially a response by lenders to the increasing inability of ordinary families to afford a home.
Of course, some of these loans were predatory and seized upon a hot market to justify the risk posed by families that probably weren’t in positions to buy homes in the first place. But, overall, the underlying problem is significant, massive, and enduring: many regions of the country have become so expensive that normal mortgage products aren't viable options for families that are otherwise middle class.
The op-ed does not probe far enough, however, and missed an important factor that explains much of this underlying problem. Much of the problem with affordability in high-cost areas is driven by the fact that supply doesn't keep up with demand because it is constricted by rules and regulations. Municipalities have shown a remarkable vitality in their ability to limit the units of housing that can be built in a given community.
The lack of diverse housing types that results from this activity ends up driving prices northward. Harvard's Ed Glaeser has shown convincingly that regulatory requirements are the chief culprit in the rapid price appreciation in high-cost areas. For businesses, worsening housing unaffordability makes it hard to recruit and retain employees over time.
For this reason, businesses as corporate citizens have an opportunity to bring an increased transparency to the decisions in by the entities that create the zoning and land-use decisions their communities. This is no easy task.
Businesses may prefer to start employer-assisted housing programs or other means of helping employees afford housing, and these are often good ideas, but establishing a regular presence at the meetings and in the offices of municipal officials whose decisions affect housing might have a greater impact in the end.
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