Arnold Kling  

A Depression-Era Solution on Housing

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Holman Jenkins writes,

So far, Washington has put its political capital into trying to refinance salvageable homes for unsalvageable homeowners, when a relevant policy would consist of judiciously buying unsalvageable houses and demolishing them. Fannie and Freddie's strength is housing market software: They could be put to work devising a least-cost, maximum-bang strategy for demolishing unoccupied homes to preserve as much value as possible for the homeowners and mortgage creditors who remain.

That sounds like advice from the Depression, when concern with excess supply led the government to slaughter pigs and burn grain.

I don't think it's a good idea to destroy houses. If we had more legal immigration and less illegal immigration, then we would have more home buyers and fewer excess construction workers. Seriously, I think that with two or three years of reduced home building, the excess supply will be absorbed.

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COMMENTS (10 to date)
Jim writes:

You make it sound like this is just a policy that reasonable people can disagree on. This sounds either irrelevant or ridiculously stupid to me. If these houses are really unsalvageable, why would they be holding down the value of housing?

KipEsquire writes:

Of course, what we could also do is allow private entrepreneurs to buy such "unsalvageable" properties, bulldoze them and build whatever they dang well please on the site -- parking lot, trans fat eatery, smoking lounge, brothel, whatever...

Rolo Tomasi writes:

World War II must have done wonders for the German housing market.

Bob Knaus writes:

In my late teens, I tried selling blueberries at a flea market. Sales were slow, I started chatting with the old guy in the booth next to me, and he told me this story:

"My first job, in the 1930s, was with the WPA. They trained us to be carpenters by building houses. But they didn't want to increase the number of houses. So, they trained one team of guys to build a frame house in a day. Then the other team of guys would come in the next day and carefully disassemble it. We did this for about 6 weeks!"

A depression-era solution indeed. Holman Jenkins often has some good ideas. But not this time. It's at least the third WSJ column he has written on the subject. Perhaps his mind will re-engage once the heat of summer receeds.

hutch writes:

sometimes, people would rather lose money on their homes than live around immigrants. a few months ago, on a blog affiliated with the atlanta-journal constitution, several readers reacted to a post about falling house prices due to hispanic immigrants moving out by saying they would rather have falling prices than immigrant neighbors.

Bryan Caplan writes:

Wow, I'm genuinely horrified by this.

stan writes:

I'm with Bryan. It doesn't make much sense to me either.

Kevin writes:

This is awful stuff from a guy who is IMHO one of the best columnists in his field. As Bob notes, this isn't the first time Jenkins has suggested destruction of wealth as the solution to this "problem". In Jenkins' defense, however, I think he arrives at this recommendation as the least destructive thing the federal government might realistically consider as opposed to something that is actually a good idea in its own right. But even if that is the case, I'd rather see him first disclaim this as the least bad of several ideas that could get traction with a government determined to do something.

Dave f writes:

Good golly! It's the broken window fallacy.

How can society be made richer by the destruction of property? The wealth of the country is not measured by the number of green slips of paper sitting in bank vaults but in the goods and services they can be exchanged for. Any strategy that reduces the goods but leaves the same number of slips of paper has made us all poorer. Only the laziest of thinkers misses the fact that these homes must be purchased by someone before they can be destroyed. That someone is every taxpayer. I'm sure that bankers, builders, and those who would individually profit will cheer loudly for the idea. Then again, I'm not sure the point was to help out those poor sufferring bankers.

Kevin writes:

It isn't the broken window fallacy. That's about wealth destruction as stimulus through the act of rebuilding. Jenkins isn't pushing a make-work based on the idea that the economy will be helped by employing people to rebuild these houses. Rather, he's talking about a policy whose specific and limited goal is to stop asset owners' losses from cascading foreclosures and liquidations. His plan to do that involves reducing supply, which will raise the clearing price, which will preserve the wealth of the people who hold the debt and people who could then sell their homes rather than walk away.

Not that any of that is a good idea, mind you. I think Arnold and Larry Lindsey are probably right.

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