Why Santelli is right, and wrong, about housing

By Felix Salmon
August 13, 2010
Zero Hedge calls one of his top 3 rants of all time (beginning around 5:40 in this clip), CNBC's Rick Santelli unloaded today on Steve Ricchiuto of Mizuho. The thing making him angry was a quote from Pimco's Bill Gross, saying that he would only buy mortgages sans a government guarantee if first-time homebuyers were forced to make 30% down payments.

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In what Zero Hedge calls one of his top 3 rants of all time (beginning around 5:40 in this clip), CNBC’s Rick Santelli unloaded today on Steve Ricchiuto of Mizuho. The ultimate cause of the rant was a quote from Pimco’s Bill Gross, saying that he would only buy mortgages sans a government guarantee if first-time homebuyers were forced to make 30% down payments.

The immediate cause of the rant, however, was Ricchiuto, who was proposing that the government solve the problem that people can’t refinance their homes. “They’ve got to go out and change the ability to refinance,” he said, prompting Santelli to ask why. When Ricchiuto responds that it’s “because the banks won’t do it”, Santelli’s rant arrives:

Banks won’t do it because the government has subsidized lending to a level no rational person — you wouldn’t, with your money, sir, let somebody buy a house with nothing down and basically a free ride to risk on an unsecured loan.

Richhiuto is game enough to respond, saying that government intervention is “the only way to get the housing market going.”

Santelli, however, is having none of it:

Then the housing market’s no good, and we should let it seek its bottom. The government can’t fix it.

Putting aside the sheer volume of the exchange, Santelli has a good, substantive point here. The housing market is being artificially inflated by underpriced government funds and guarantees, and every day that continues is every day that taxpayers in general, and renters in particular, subsidize homeowners in general, especially those in states with high house prices like California and Connecticut.

Which doesn’t mean that Richhiuto is wrong. On the contrary, Santelli is angry precisely because he’s right. The government does need to get the housing market going, because the alternative is unthinkable: if the government just kicked away the housing market’s multi-trillion-dollar scaffolding overnight, as Santelli suggests it should, then the entire banking system would become insolvent, and we’d soon be reminiscing wistfully about how painless and shallow the 2008 financial crisis was, compared to the one of 2011.

I would love to see a world of much more affordable housing, where lenders underwrote mortgage loans without government help. The problem is that there’s no way of getting there from here without causing an unacceptable amount of pain. Homeowners would hate it, of course — they love it when property values rise, and are very upset when property values fall — but the biggest losers would be the lenders.

Which is why my long-term forecast is for house prices to decline steadily in real terms over a few decades: that’s the amount of time it will take to get back to a system which can sustain itself without artificial government support. The Santellis of the world won’t like it, but I can assure them that they’d like the alternative even less.

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Comments
30 comments so far

Hi Felix,

When you say:

“The problem is that there’s no way of getting there from here without causing an unacceptable amount of pain.”

I just wonder who gets to determine what an “acceptable amount of pain” is? You? When an entire country lives beyond its means encouraged by decades of irresponsible monetary and fiscal policy, what _is_ an acceptable level of pain?

The longer you avoid taking the required medicine, the worse the eventual pain will be. We cannot continue to prop up insolvent institutions forever. If reality makes them insolvent, then let it be.

This country will survive even if the financial industry as we know it crumbles. Entrepreneurs will find a way to provide credit to businesses if only the government would get out of the way. We would be stronger for it in the long run. The current policies amount to a slow, painful, and inevitable death.

Posted by EconoDarwinism | Report as abusive

I really don’t like people who live in houses any more. They are the new welfare kings and queens living in mcmansions and driving SUVs.

I rent and accept the argument that pulling away government support for the mortgage market would wreak havoc. But the average mortgage deadbeat seems oblivious to it all. It would be nice to hear just a few say, “Oops – I’m sorry. Thanks!”

Posted by silliness | Report as abusive

If I were king, I’d wind down government-backed loan originations over 10 years. The idea that Santelli is wrong because we can’t change “overnight” kind of hides the (IMO) rational solution.

And “a few decades” is way too long.

Posted by jpersonna | Report as abusive

BTW, I probably won’t comment again. Readers don’t deserve gatekeepers.

Posted by jpersonna | Report as abusive

“because the alternative is unthinkable…”

So, Felix, you’d prefer the perpetuation of a bloated, corrupt, incompetent housing finance system which exploits renters, makes zero-down loans and pays its executives multi-million dollar salaries and bonuses. Interesting view.

The election of a new President, coupled with the unprecedented financial crisis, represented a unique chance for the United States to make some fundamental changes in the direction toward fairness, responsibility, dare I say sanity.

However we’ve totally blown it, preferring instead to get back to the old status quo as quickly as possible. Disgusting, really…

Posted by dbsmith1 | Report as abusive

The problem with the Santelli’s of the world is that (and you maybe indirectly hinting it) he can keep ranting and the world we live is conflicted (or is it ing) enough that a rant a day will keep him going till the end of time. Problem is that he never descends to terra firm from his teabag long enough (or at all) to even consider the practical implications of any solutions.

Given this backdrop, almost the only thing anyone can do is to rant against the ones doing something (however stupid/smart because there is so little agreement in any corner, except that anything being tried is wrong). To read anything intelligent into these rants is necessarily buying into this vapid knee-jerk response mentality, which appears to have taken strong hold since the current Prez came into power. What is frustrating is that we could have used much more of it for the prior Prez.

As for Santelli, I think I can certainly remember at least two instances when Steve Liesman stumped him (which means at a loss for words, he doesn’t know it, he is always stumped and keeps batting anyway) by merely asking him what he wants someone to do – ie., suggest a plan. QED.

Posted by rmurthy | Report as abusive

Good points made all around. With Freddie Mac and Fannie May both having been bailed out by the US government it’s a bit rich complaining they now play a part in the housing market. On the other hand, house price inflation is not good for any economy – and those with the highest rates of such inflation suffered most in 2008.

Sadly, most home owners see houses as investments, but if you need one to live in its not like you can take the profits out and still have a home. The problem for an economy is remortgaging against inflated prices, then spending the money raised on imported consumer goods. All that does is increase personal and National debt, which is no good for anyone.

Unfortunately, the political ideologues have some very good ideas in theory, but sometimes you can’t help thinking they’re still fighting last years battles. Now that we are where we are, we need to do something different to those things we should have done to prevent the situation arising all those years ago, but didn’t. Ironically, the ideologues were even then looking backwards, not forwards.

Posted by FifthDecade | Report as abusive

Santelli is a loud mouth who doesn’t make my ears bleed! He makes a lot of sense. You really can’t just pull the plug but it is all going to bottom out and the cushions are just keeping the market artificially inflated. Not everyone is losing out out as it unfolds, though! just the poor taxpayer and legit homeowners.

There are always those who never make too much money, or care who they throw under a bus to make it! You guys need some real regulation because it won’t just magically stop and end in a good place. Sadly, we are on a dingy attached to your sinking airplane and all my sharp objects were removed… Sorry but that analogy is just too apropos to pass by!

http://www.youtube.com/watch?v=ssl5yb7Fe wA&playnext=1&videos=XqM2D_CbsHQ

Posted by hsvkitty | Report as abusive

What needs to happen is prices settle far lower than they were. Housing needs to be a long term investment again.
The boom busted as it was not sustainable. Let’s not create another one.

Building $500k houses for $100k people made a few rich and many broke. Flipping added to unrealistic housing cost hikes. Still few are seeing that as the beginning of the problem. While we focused solely on them as the bad guys, lenders only complemented the initial bad acts with developing bad loans to allow and sustain this good for a few, bad for USA RE biz practice.

IMHO What needs to be focused on is:

1. how its driving up rental costs in a bad economy, making life less affordable for those who were strapped in good times.
How to stop this trend? Supply is in complete control despite the needs of demand (at least in CA.)

2. How to make the existing overpriced (oversized) more affordable.
In some cases maybe modification and rezoning as r2 where it can be done?

3.Any new BUILDING should focus on more affordable and accessible considering the needs of growing population of seniors and disabled who prefer to be able to buy/rent and stay in their homes.

Posted by macdoodle | Report as abusive

Why is the following unthinkable?
“if the government just kicked away the housing market’s multi-trillion-dollar scaffolding overnight, as Santelli suggests it should, then the entire banking system would become insolvent, ….”

Isn’t this how capitalism works and the reason why we have bankruptcy laws?
The only way for a long term revival is NOT the transfer of wealth from the people to the banks that you mention…it is getting rid of this bad debt so that the system can be recapitalized.
I just do not get why these stories of “unthinkable alternatives” are always pushed down peoples throats…

Is the present any better? Are companies hiring? Are small businesses getting any credit to function properly? Are borrowers who satisfy the 3 C’s (Credit, capacity and Character) able to get loans to start businesses?
The answer to all the above questions is a big NO.
Am surprised that a person as sharp as Felix is pushing the “untinkable consequences” storyline.

Posted by pot | Report as abusive

You’re getting so close to writing the Truth That Shall Not Be Spoken. When you say that if the government stops artificially inflating the housing market, then the entire banking system would become insolvent, the implication of course is that the entire banking system IS insolvent. To those that have eyes to see, this has been clear for three years.

All that the government has done to avoid acknowledging this fact – the massive bailouts of banks, paying off AIGs debtors at full value, covering all of the losses of the GSE bondholders, etc; has been the greatest theft in human history. Inconceivable amounts of money are being transferred from taxpayers to keep those who willingly took massive risks from facing the costs of those risks.

Posted by MattJ | Report as abusive

This is not such a complicated matter. Simply reduce the mortgage interest deduction by 5% per year for the next 20 years, in order to smooth out any shocks.

Posted by TaxLawyer | Report as abusive

I like that idea, TaxLawyer, as it would preserve much of the benefit for people who have already bought under the old rules. However, you could still see a sharp shock in the housing prices once the bill is passed. A buyer would know that most of the benefit from the mortgage interest deduction would be disappearing, and would presumably adjust the purchase price accordingly.

Another approach might be to establish a dollar cap on the deductible interest that either remains fixed (subject to erosion by inflation) or falls steadily. There would be price shock for properties above that cap, but otherwise it would phase in gradually.

I also like the idea of writing it as a tax credit (likely a 15% tax credit) rather than as a deduction. No reason why people at different income levels ought to be subsidized differently when buying the same property.

Posted by TFF | Report as abusive

Ack! The mortgage interest deduction is a plum. Isn’t it time to get everyone’s thumbs out of the pie and make homeowners able to actually afford the home on … let’s say .. financial merit?

And why are the rich able to get the same subsidies and tax breaks when they should be based on need and meet qualifications? And why are people allowed to use the subsidies and tax breaks to adjust their mortages/payments?

I know I am an old fuddy duddy to even be mentioning such a thing… but it is one reason why we in canada are still afloat, at least for now. Tougher rules and regulations really do work in everyone’s favour. (and are less likely to bring out the scum and make for unethical behaviour)

Yes everyone wants tax breaks but I daresay being able to afford the mortgage in the first place and having a good credit rating and assets should be a priority.

Maybe you need more banks? (rolls eyes)

http://www.fdic.gov/bank/individual/fail ed/banklist.html

Posted by hsvkitty | Report as abusive

Why is the following unthinkable?
“if the government just kicked away the housing market’s multi-trillion-dollar scaffolding overnight, as Santelli suggests it should, then the entire banking system would become insolvent, ….”

Isn’t this how capitalism works and the reason why we have bankruptcy laws?
The only way for a long term revival is NOT the transfer of wealth from the people to the banks that you mention…it is getting rid of this bad debt so that the system can be recapitalized.

Is the present any better? Are companies hiring? Are small businesses getting any credit to function properly? Are borrowers who satisfy the 3 C’s (Credit, capacity and Character) able to get loans to start businesses?
The answer to all the above questions is a big NO.

Posted by pot | Report as abusive

It is true that if the government pulled out its support house prices would fall, but that is not because house prices are overvalued. It is because there is temporarily no savings and temporarily a poor job market. Those two things are being fixed over time.

Look, we’ve all seen a many charts that show housing has returned to its valuation average. Rents are already increasing, and the landlording business is doing gangbusters. If society moves more to renting, that doesn’t change the math that much.

Bullish aspects to housing (long run)
- God (still) isn’t making any more land
- US population keeps growing, from both internal birthrates and from immigration. The potential immigration flood hasn’t kicked in fully either: we vigorously hold the world at bay with our immigration process.
- Commodity prices, and especially oil, are a big driver in materials costs. Houses that were built cheaply when oil was $20 a barrel cost a lot more in materials now.
- We had our crash and it was massive.
- Building has slowed dramatically and the housing overhang is draining away.

I don’t see why you call American house prices overvalued. Nothing could be further from the truth. If anything houses are cheapish in America because we are on the back side of a leverage runup and are being forced to disgorge properties. Those worried about government spending seek hard assets like gold and yet they foolishly flee the most utilitarian hard asset of all, a home.

American low savings actually has forced things to return to sensibility on a cash-flow basis. In fact it is in the places with less leverage and more cash that house prices can really get out of hand: witness Japan in 1990 and China now. With plenty of cash, it is possible to run bubbles to grotesque heights. That is not us.

Look at house prices versus incomes. On the international scene, America is the least problematic of countries. There are so many countries with unpopped real estate bubbles. American real estate in 2010 is a non-issue, except for those biased by recent experience.

Posted by DanHess | Report as abusive

Let’s shift the focus a bit here.

A typical FNM/FRE borrower is ‘middle class’ and underwater.

The (TBTF) banks will lose on their RMBS exposures if they have to mark to reality because they’re stuffed with residual tranches of AAA super senior CDO crap, not because they hold FNM/FRE eligible mortgage loans.

But its probably in the best interest of the country to provide some forebearance/debt relief to middle class FNM/FRE borrowers, if only to get them spending again (and thus reemployed as a consequence of increased spending). and to provide some capital to the not-TBTF banks. And to vote D in the coming election.

But since the failure of 1 JPM is equivalent to the failure of 100 non-TBF banks, JPM has had more leverage so far.

Maybe the time is here (mid-term elections) to recognize (I think Ms Bair has) that bailing out FNM/FRE (and its borrowers) bails out the middle class, the FDIC, and the non-speculator class of US citizens.

Don’t forget Treas is the dominant one (representing the TBTF banks) fighting loan forgiveness out of fear of the ripple effect on the private RMBS market.

The FDIC is on the other side of the conflict, stuck with the costs of bailing out FNM/FRE stuffed banks. They want their bailout too, don’t you know. What’s an FDIC regulator to do but to recomend a solution that reduces FDIC costs to the gov’t?

That solution ( debt for

Posted by mcnet | Report as abusive

Sorry, Contd:
The solution: Keep FNM/FRE borrowers in their homes, in their communities, at an affordable level. If FNM/FRE succeed in giving debt relief now, (with an option to recapture any potential upside later)the vast majority of homeowners will breathe a sigh of relief,vote D, and the speculator class will take their lumps as the housing market adjusts (as it should). If the Fed needs to further bail out the big banks, so be it. Ultimately the big banks, not the taxpayers, bail out the Fed. (I know, taxpayers are still on the hook, but isolating the losses at the fed make it politically more difficult for blanket taxpayer bailout of the fed, but it sure would be nice to see some pushback from the masses against the Goldman’s)

One major point that’s lost in most of the analysis over the past 3 years is that the profligate borrowers weren’t borrowing from FNM/FRE. They were borrowing from the private RMBS market. The private RMBS funding was facilited by the IBs. We now know what an egregious scam that was (Magnetar, et al).

My sense is that we’ve reached a tipping point, going into the Nov elections, that things are bad for the average homeowner, that the average homeowner (typical FNM/FRE qualifier) expects the govt to cover their ass for a few years, and any solution that provides that cover will be rewarded.

Posted by mcnet | Report as abusive

DanHess, I don’t think I’m the one who suggested that housing is overvalued, but I can make a case for housing prices dropping further over the next year.

(1) Household savings are in the toilet. If we revert to requiring a more reasonable downpayment, many potential buyers will be taken out of the market while they save up.

(2) The economics of the rental market are improving, for those who have the capital to take advantage of it, however the historically low interest rates we are seeing play a key role in that. Bump those interest rates by 2% and you’ll need either a 25% increase in rents (not likely in this economy) or a 10% to 15% decrease in sale price to bring the rental equation back in balance.

(3) The same argument applies to potential homeowners. Affordability is strongly affected by interest rates.

In my opinion, this is a good time to buy *if* you can hold the property (and the mortgage) for at least ten years. But rising interest rates could cause prices to fall further, while DECREASING affordability at the same time.

Posted by TFF | Report as abusive

“Isn’t this how capitalism works and the reason why we have bankruptcy laws?”

Uh, no, it’s how capitalism breaks down unless government takes action to support it. If bankruptcy were costless (zero sum game), we wouldn’t need most of the bankruptcy code. No need for chapter 11, we’d just liquidate automatically, and the magic invisible hand would allocated the freed resources optimally.

Unfortunately, in the real world, bankruptcy is negative sum.

Posted by Greycap | Report as abusive

re the comment on tax credits/deductions.

Here in the UK interest paid on mortgages used to be a deduction against income before tax. It was always argued ( particularly by those who benefited from it most ie the highest rate tax payers) that it was a central pillar of the housing market and it’s removal would lead to a collapse in prices.

Well it was removed and it made no difference at all house prices continued to rise to the sky and now we have a situation where young people and I am talking up to mid 30′s here either can’t afford to buy at all or living in poor houses in areas where they wouldn’t chose to live.
Basically this happened because the market was artificially inflated by those who had the capital and were allowed by the lax rules to use houses as a speculative asset. The rise in prices was then inflated further by the many parties with a huge vested interest in seeing prices go ever higher ie existing owners,solicitors, estate agents, insurance companies, banks, surveyors, builders etc.

I regret to say Felix is right in that the support system is so great it can’t just be kicked away and prices left to fall to the appropriate level because the devastation for young people already looking for jobs would be so bad , next up would be widespread social problems.

There is no easy way back but once we get there as we inevitably will this form of unfettered capitalism must never be allowed to be repeated in something as important to society as housing

Posted by crashproof | Report as abusive

Chrashproof wrote,
“the support system is so great it can’t just be kicked away and prices left to fall to the appropriate level because the devastation for young people already looking for jobs would be so bad”

Actually, if prices fell it would be great for young people who might actually be able to get in on a decent house at a decent price. Their parents’ generation had as much as several-fold real appreciation to look forward to a generation ago, depending on where they bought. A fall would conversely be very bad, obviously, for existing homeowners.

Posted by DanHess | Report as abusive

“the alternative is unthinkable: if the government just kicked away the housing market’s multi-trillion-dollar scaffolding overnight, as Santelli suggests it should, then the entire banking system would become insolvent,..”

Felix,

A great part of the US banking system is indeed insolvent, and there’s no scaffold holding it, since all the money the government has been pouring into the housing market isn’t helping a bit – just delaying the solution.
There is however a thick layer of magical makeup applied on the crackled faces of those banks, in the form of twisted accounting rules that turn banks’ financial reports into a joke that some people take seriously.

Posted by yr2009 | Report as abusive

@DanHess

I you read my post again you will see I referred specifically to the young people who couldn’t get jobs. If the housing market is as important to the economy and employment as is generally assumed then the jobs situation would get even worse and if you don’t have a job you can’t buy a house no matter how ” cheap” they are.

Falling house prices would be bad news, at least in pure paper value terms, for existing older owners, I come into that category but I would readily trade some of my ill gotten gains if it meant a better outlook for the young who are looking to buy a home to live in and don’t see it as a financial asset – in parts of Europe houses have in the past been simply places to live where one didn’t buy in the expectation of making any profit in the event of a sale – unfortunately towards the end of the bubble Europeans got caught up in bubbles in the UK and US markets and started to buy houses as assets with a view to profiting from the transaction.

Posted by crashproof | Report as abusive

Felix,

Your view reminds me of Jack Nicholson’s in “A Few Good Men,” when he tells Tom Cruise that “You can’t handle the truth!”

http://www.youtube.com/watch?v=5j2F4VcBm eo

For you “The government does need to get the housing market going, because the alternative is unthinkable….”

You & Col. Jessep (and Dostoevsky’s Grand Inquisitor) believe there are some truths that ought not be acknowledged, because “if the government just kicked away the housing market’s multi-trillion-dollar scaffolding overnight . . . then the entire banking system would become insolvent….”

(The Grand Inquisitor says that under him, all mankind will live and die happily in ignorance.)

Like Tom Cruise & Alyosha Karamazov, I would disagree with you over what is “an unacceptable amount of pain.”

Unlike Col. Jessep & Ivan Karamazov, I think that we can handle the truth.

If previous generations could extend the franchise, oppose dictatorships, or end legal segregation — all of which at one time or other seemed “unthinkable” — why should the current one think “unthinkable” the application of mark-to-mark accounting?

Posted by dedalus | Report as abusive

The pain has only begun.
The reckless (& even the innocent!) will need to find a way to bear it.

What the Fed apologists are really saying is:
“The reckless should be allowed to spread the pain to the innocent.”
This is morally wrong, and this is what Santelli and I are objecting to.

Posted by DrBubb | Report as abusive

In the UK: “Well it was removed and it made no difference at all house prices continued to rise to the sky and now we have a situation where young people and I am talking up to mid 30’s here either can’t afford to buy at all.”

I lived in the UK for most of that housing boom, and it is ending now. The government subsidised it in many ways, and worse yet: they covered people’s mortgages when they lost their jobs, and handed (unlimited) housing subsidies to poor folk. And UK lenders were wildly aggressive too, lending up to 120% of a property’s value. When Brown and Labour were voted out, the props began to be kicked out, and prices are beginning to fall. Rightmove has just reported a -1.73% one month drop in asking prices, and I can see 2-3 years of price drops averaging 1% may lie ahead in the UK.

Want more? /see; http://tinyurl.com/UKtrap

Posted by DrBubb | Report as abusive

To a comment way up there that mentioned God isn’t making any more land. God has nothing to do with land use patterns or the way the land is developed.

It doesn’t take more terra firma to create a city or more square miles of slurbia. It takes roads and infrastructure. And the land is nearly worthless without access to it.

Cities tend to radiate from central cores in this country and every further ring contains a geometrically larger area of available exploitable space. If it wasn’t for the national realty networks setting prices for all buildings within a metro area, there would likely be a much larger variation in price from center to edge. Rents don’t seem to get priced with this in mind because they are as high in the edge community I live in as they are nearer the center. But owner occupied housing tends to be less expensive the further it is from the core.

And another factor limits the ability to rebuild and make more dense the urban cores. Every suburban town lives in horror of density. They all pass zoning laws designed to maintain property values by freezing their neighborhoods to the suburban scale. This is something that has happened within the last 30 to 40 years. All those Mr Blandings want their dream houses to sit in the country with all the other Mr. Blandings and they all want their dream houses to live that way forever.

This situation of such restrictive zoning is modern. Historically – world cities – not just those in the US – tore down undersized and rapidly over priced structures and replaced them with larger, multi unit buildings to keep housing and business premises affordable (not actually their intention perhaps – just the result). Town houses become apartment buildings by conversion or demolition. Lower Manhattan – until the turn of the century, was filled with four and five story buildings that started as homes, became business premises or were replaced with cast iron buildings (like those still standing in Soho) and were eventually replaced with high rise structures to keep pace with the growth of the city overall.

Every suburban community in the country has enacted zoning laws designed to keep the suburban scale at all costs. And those rules stand in the way of every effort to make the city and suburbs less dependent on the automobile or capable of providing less expensive housing or even of a workable and more extensive public transportation network. The Towns, State and Federal Government have had to step in to provide for affordable housing under these modern conditions. Suburban communities don’t tend to like multi-unit buildings. They try to hide public housing whenever they are forced to provide any. In Boston, one very large project is located next to the major interstate highway.

Zoning law has expanded beyond it’s original intention of providing for health and light and become a system where those in the towns can control the entry of newcomers on their own terms and at rates that don’t undercut their own investment. The whole system is a little crooked and very rigged actually.

Posted by paintcan | Report as abusive

To a comment way up there that mentioned God isn’t making any more land. God has nothing to do with land use patterns or the way the land is developed.

It doesn’t take more terra firma to create a city or more square miles of slurbia. It takes roads and infrastructure. And the land is nearly worthless without access to it.

Cities tend to radiate from central cores in this country and every further ring contains a geometrically larger area of available exploitable space. If it wasn’t for the national realty networks setting prices for all buildings within a metro area, there would likely be a much larger variation in price from center to edge. Rents don’t seem to get priced with this in mind because they are as high in the edge community I live in as they are nearer the center. But owner occupied housing tends to be less expensive the further it is from the core.

And another factor limits the ability to rebuild and make more dense the urban cores. Every suburban town lives in horror of density. They all pass zoning laws designed to maintain property values by freezing their neighborhoods to the suburban scale. This is something that has happened within the last 30 to 40 years. All those Mr Blandings want their dream houses to sit in the country with all the other Mr. Blandings and they all want their dream houses to live that way forever.

This situation of such restrictive zoning is modern. Historically – world cities – not just those in the US – tore down undersized and rapidly over priced structures and replaced them with larger, multi unit buildings to keep housing and business premises affordable (not actually their intention perhaps – just the result). Town houses become apartment buildings by conversion or demolition. Lower Manhattan – until the turn of the century, was filled with four and five story buildings that started as homes, became business premises or were replaced with cast iron buildings (like those still standing in Soho) and were eventually replaced with high rise structures to keep pace with the growth of the city overall.

Every suburban community in the country has enacted zoning laws designed to keep the suburban scale at all costs. And those rules stand in the way of every effort to make the city and suburbs less dependent on the automobile or capable of providing less expensive housing or even of a workable and more extensive public transportation network. The Towns, State and Federal Government have had to step in to provide for affordable housing under these modern conditions. Suburban communities don’t tend to like multi-unit buildings. They try to hide public housing whenever they are forced to provide any. In Boston, one very large project is located next to the major interstate highway.

Zoning law has expanded beyond it’s original intention of providing for health and light and become a system where those in the towns can control the entry of newcomers on their own terms and at rates that don’t undercut their own investment. The whole system is a little crooked and very rigged actually.

Posted by paintcan | Report as abusive

“Which is why my long-term forecast is for house prices to decline steadily in real terms over a few decades”.

Felix, I love you man but here you’re puffing a magic dragon. If this shit is overvalued, then it must be priced CORRECTLY. So that young families, etc. can AFFORD to buy a house. Why should I, a renter, subside a $500k purchase of a shack in San Fran? This is bullshit, plain & simple.

Posted by lobster | Report as abusive
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