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Supply and demand do work

March 10, 2009 by Charlie


The current political stampede to stop mortgage foreclosures proceeds as if foreclosures are just something that strikes people like a bolt of lightning from the blue– and as if the people facing foreclosures are the only people that matter.

What if the foreclosures are not stopped? Will millions of homes just sit empty? Or will new people move into those homes, now selling for lower prices– prices perhaps more within the means of the new occupants?

The same politicians who have been talking about a need for “affordable housing” for years are now suddenly alarmed that home prices are falling. How can housing become more affordable unless prices fall?

The political meaning of “affordable housing” is housing that is made more affordable by politicians intervening to create government subsidies, rent control or other gimmicks for which politicians can take credit. Affordable housing produced by market forces provides no benefit to politicians and has no attraction for them.

In the wake of the housing debacle in California, more people are buying less expensive homes, making bigger down payments, and staying away from “creative” and risky financing (see chart above). It is amazing how fast people learn when they are not insulated from the consequences of their decisions.

~Thomas Sowell’s latest column “Subsidizing Bad Decisions”

Filed Under: News Tagged With: housing industry

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