The CPSC and homeownership

By Felix Salmon
June 29, 2009

Jim Surowiecki weighs in on the Consumer Product Safety Commission today, but says that “the new regulations will come at a price”:

Serious regulation will mean that fewer people can buy homes. But this may not be a bad thing, given all the trouble the housing bubble caused.

For one thing, regulation doesn’t necessarily mean that fewer people will be able to buy homes. Expanding the number of people who can buy homes is the kind of thing that the CRA does, along with government downpayment assistance and the like for low- and middle-income families. That’s not going to go away.

Regulation does, on the other hand, mean that fewer people will be able to overpay for homes — to buy homes they can’t afford. In other words, it will help put a cap on house prices, since speculators and flippers won’t be able to buy anything they like armed with nothing but crossed fingers and a NINJA loan. So long as it costs less to buy than to rent, however, banks should be able to find a way to help most people buy a home if they really want to.

But in any case the housing bubble was hardly a consequence of rising homeownership: homeownership peaked long before the height of the bubble, at the end of 2004.

Rather, the positive effects of lower homeownership lie elsewhere: in more liquid labor markets; in thinner and happier people (not to mention much less leveraged households); and in less societal inequality between rich neighborhoods where substantially everybody owns their home and poor neighborhoods where substantially everybody rents. But Surowiecki knows all this: he wrote an entire column, last year, on the downside of homeownership.

Fewer people buying more affordable homes, then, isn’t a “price” of setting up the CPSC, as Surowiecki would have it. Rather, it’s set to be one of the CPSC’s main benefits. Let’s hope that homeownership falls as a result of the CPSC: it would make America a significantly better place.


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Lower homeownership rates also implies:

1. Need for better care for the retired and elderly because more will lack home equity and unless you’re hardcore right wing this implies a societal obligation.
2. Potentially more stress on social security and its long-term funding.

Another aspect to more renters might be increased density and more investment in renewing housing for competitive reasons. Both good things.

Posted by jonathan | Report as abusive

“Rather, it’s set to be one of the CPSC’s main benefits.”

Well, that’s what I meant to imply with the last line of that graf: reduced homeownership rates wouldn’t be a bug of the CPSC, but a feature.

Having said that, to the extent that Americans have this irrational desire to own homes (and to own big homes), the fact that the CPSC will make that harder for them — and I think it’s pretty clear that it will (Edmund Andrews, for instance, probably wouldn’t have been able to get a mortgage if CPSC rules were in effect) — is a cost, in the same way that raising taxes on cigarettes comes at a price (people who want to smoke find it harder to do so). It’s just clearly a price worth paying.

Posted by James Surowiecki | Report as abusive

Please, someone protect us from those magical holes in the wall. I dare say, I am deeply moved to poke my finger to check if the electricity works.

Bubbles happen, and an asset bubble will happen again. Just don’t shut the door completely on those who have done nothing foolish, chose saving over consumption, and are now positioned to become a home buyer for perhaps the first time. If I want to own a home for my young family, who has the right to say I should not ?

Under-informed public making poor decisions, and an ill-advised financial system poorly equipped to inform but well-equipped to learn new methods of separating a fool from his gold.

Posted by Griff | Report as abusive

What good are regulations going to do if they are not enforced? I think there were plenty of regulations that would have prevented the meltdown if anybody had paid any attention to them. We did have an administration that did not believe in regulating businesses, so they turned away from a lot of situations where they could have prevented bad things from happening.

Posted by KenG | Report as abusive

A house sold at a low price to a low-income family is a PRIME loan. If the CPSC does nothing other than simply enforce 20% down, 36% back-end DTI for all housing loans.. no exceptions, not even for Phil Gramm.. we would not be in a horrific recession, and we would have stability in the housing market.

Yes, that means rich folk would have had to take their loss after the 2001 dot-com burst.. but now we have yet another example of why the balance sheet pain of making bad loans MUST be forced to occur.

Posted by Unsympathetic | Report as abusive