October 14, 2014

Put the Market Back in Real Estate

Dino Falaschetti

Senior Research Fellow
Summary

Finance is not a plaything for policymakers. It is the fuel for economic dynamism. When policy steers finance away from competitive opportunities, we make recessions worse, recoveries slower and economic outcomes less equal. That’s three big strikes against how we govern housing finance, and it’s time to change.

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We’re six years out from the financial panic of 2008. But the U.S. economy continues to stop almost $1 trillion short of its potential. And while unemployment rates have decreased, a remarkable number of Americans have left the labor force.

The facts are discouraging, but public policy can do better. For example, allowing markets to discipline how we finance housing – not doubling down on the unsustainable political favors that got us here – can go far in turning our economy in a better direction.

How, you might ask, could improving financial policy for a single sector like housing do so much good? Because poor policy has done so much bad.

Consider this: News about rising prices for energy, food and transportation is regularly characterized as bad for the economy. But when housing prices rise, popular media applaud. Why do we draw such a dichotomy? In a word, politics.

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