Lessons from the Housing Bubble Have Been Forgotten

Printer-friendly version

Because governments see housing investment as a driver for the domestic economy, they overinvest in homeownership by promoting subsidies such as tax deductions for mortgage interest payments and lower capital gains on property sales

October 12, 2016

Former banker and finance author Satyajit Das writes in MarketWatch that housing has been treated more as a financial instrument than as a shelter. Consequently, houses are relied upon too heavily for storing wealth, which exposes households to volatile real estate prices. Because governments see housing investment as a driver for the domestic economy, homeownership is promoted through subsidies such as tax deductions for mortgage interest payments and lower capital gains on property sales. But these practices not only led to an overinvestment in housing, they also mask the lack of growth or declines in income levels and uncertain employment for the parts of the population.

While such policies increase property wealth, they also push house prices higher, rendering homes unaffordable for some. As these policies failed, they led to a hard-to-control, unwinding housing bubble as seen in the U.S., Ireland, and Spain. Sadly, says Das, policy makers appear to have learned little from the previous bubble, as evidenced by their push for low interest rates.

To Read More

Comments

Being a participant both as a residential builder and homeowner in four previous housing bubbles, the hypothesis of lessons forgotten seems to predominate the landscape.  In a process that mirrors an approximate  ten year cycle, greed overcomes common sense and the bubble bursts for all.  While some opine that the building industry experiences a "cleansing" of bad builders, subcontractors and lending institutions, the sad recipient of this cycle are the hundreds of thousands of people that loose their homes.

Pages

Add new comment

Filtered HTML

  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <cite> <blockquote> <code> <ul> <ol> <li> <dl> <dt> <dd> <img>
  • Lines and paragraphs break automatically.
  • Captions may be specified with [caption]<img src="example.png">Image caption[/caption]. Items can be aligned with [caption align=left].

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
By submitting this form, you accept the Mollom privacy policy.

Comments on: "Lessons from the Housing Bubble Have Been Forgotten"

July 2017

This Month in Professional Builder

Products
Features

Ashton Woods launched Starlight Homes to target entry-level home...

Overlay Init