July 10, 2019
By Christina Sandefur
Massachusetts Senator and Democratic presidential hopeful
Elizabeth Warren recently visited Detroit to pitch her housing proposal in
front of the city’s Eight Mile Wall. Built nearly 80 years ago when developers
sought to construct whites-only housing communities, the wall stands today as a
vestige of past injustices—and a call for a better future.
Unfortunately, Senator Warren’s plan would likely
exacerbate the problems it purports to solve—and stick taxpayers with a hefty
bill. The Warren proposal offers financial assistance to first-time homebuyers
living in areas that were once excluded from government housing programs, and
to those who lost their homes during the recent mortgage crisis. It would also
commit $500 billion over 10 years to build “affordable housing.”
During the housing crisis, low-income and minority
homeowners witnessed a dramatic decline in the value of their homes—a
predicament Warren seeks to remedy. But as the Manhattan Institute’s
Howard Husock notes,
minimizing or eliminating down payments doesn’t ensure stable homeownership. To
the contrary, it increases the likelihood that homes will fall into
disrepair or be foreclosed. The point of a down payment is to act as a form of
insurance for the property owner. Eliminating it makes it more likely that the owner will have to seize the property in the
event of default. And that, of course, has lasting financial consequences for
the owner and neighbors.
In fact, it was the federal government’s guaranteed
mortgages that helped cause the Great Recession in the
first place. People who would have moderated their purchases, or opted to rent,
instead bought homes they could not afford, thanks to encouragement from Uncle
Sam. Warren’s proposal would double down on that foolhardy approach and further
incentivize people to take unwise risks that could devastate them, their
families, and their communities.
In fact, government policies have historically
exacerbated all sorts of housing inequalities. Zoning laws
throughout the 20th century have been directly responsible for racial
segregation, and many remain indirectly responsible today.
For example, about half of Los Angeles is zoned exclusively for single-family homes, which
deprives would-be homeowners of options and makes housing more expensive,
which, of course, has disproportionate effects on less wealthy minority
homeowners.
Worse still, cities nationwide are
banning home-sharing, which deprives homeowners of a means to cover their
mortgages in the face of increasing costs. Airbnb reports that in ten of
America’s largest cities, more than half of its hosts would be unable to pay
their bills without the extra income from home-sharing, and 13 percent would
have faced foreclosure.
Government regulations and red tape also make it
prohibitively difficult to construct new housing, which further contributes to
the lack of affordable housing options. A 2015 study conducted by Point Loma
Nazarene University shows that housing regulations add 40 percent to
the cost of building new homes in the San Diego area. A study by the National
Association of Home Builders showed nearly a 30 percent increase in the cost of
complying with building regulations in just five years.
Rather than proposing a new costly, one-size-fits-all
government plan that is likely to cause more problems than it solves, Senator
Warren would do well to support policies that reduce regulation,
empowering all individuals to fulfill their unique preferences and needs, such as:
As the 2020 election approaches, we’ll almost certainly
hear more about this and other similar proposals. But rather than adopting
“feel good” plans that do more harm than good, we should learn a lesson from
the history books and pursue policies that give everyone a shot at their
American Dream.
Christina
Sandefur is the Executive Vice President at the Goldwater Institute.
