Sep 21, 2006

Housing starts down; let's celebrate

Let's calm down about the latest data showing that housing starts are way down from a year ago. Everyone seems to think this will have a ripple effect into a doomsday - scenario recession. Widepread panic reigns.

Might I offer a contrarian view? This is actually good news.

The so-called housing industry has long been supported by government policies --- taxation, immigration, highway, energy, economic development -- that, if they were to be similarly extended to other sectors, would cause a huge "that's not fair" outcry. We often hear libertarians and some conservatives decry this type of "choosing economic winners," but never when such an argument is applied to housing. After all, the vested interests that are lined up within it are the most powerful in the land.

I would suggest that in this era of a global economic reality, to tie up this nation's private sector investment capital in a game of swapping real estate back and forth does not stregthen our international competitive hand.

The same view holds on a micro level. The day a bright, creative 27yo professional signs the dotted line mortgaging his future on a $500,000 home immediately makes him or her unlikely to ever take the plunge on starting a new entrepreneurial venture. His or her capital is tied up for thirty years, the timeframe which parallels the period in which new firms are, in fact, started. You think they're launched the day after the mortgage - burning party? Uh-uh.

Public policy, as applied to the housing industry, is out of synch with today's economic order. Letting the air of of this bubble will do us some real good. Sure, it will be rocky for some that bought at the top, but nothing is (or should be) guaranteed in market economics.

If I were king: I'd phase out the mortgage deduction over a 40-year period.

Now, what are the chances that this type of idea would ever make it into the public debate? Don't hold your breath.

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