Are Government Regulations Holding Housing Back?
Originally published by: Investor's Business Daily — May 19, 2016
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Seemingly everyone applauds the recent surge in home prices as a positive sign for the economy. But, in fact, it isn’t. If anything, it’s a sign the federal government still hasn’t learned its lesson about excessive regulation.
While prices for homes have surged in recent years, they’ve done so thanks mainly to federal regulations put in place after the financial crisis. Low interest rates engineered by the Fed to stimulate the economy have fueled a surge in demand, driving prices up sharply. And federal regulations continue to require mortgage lenders to make risky home loans based on race and ethnicity, not creditworthiness — just as they did in the Fannie Mae and Freddie Mac market bubble of 2006.
On the surface, it seems puzzling: The homeownership rate plunged to just above 63% in the first quarter of this year, down from a peak of 69% in the third quarter of 2006. And yet, over just the last four years prices have surged 30% or more across much of the country. How can long-term demand be falling and prices rising at the same time?
For one thing, homebuilders, wary of the growing layers of regulation and the possibility of another market crash, just aren’t building homes as they once did. As we noted in a recent editorial, the 2010 Dodd-Frank law, perhaps the biggest regulatory mistake of our generation, has acted as a wet blanket not just on the housing market but on the entire economy.
In that editorial, we quoted American Enterprise Institute housing expert Peter Wallison, who served as a member of the federal government’s official investigation into the financial crisis: “Dodd-Frank was enacted by Congress without any significant effort to understand what actually caused the financial crisis.” Exactly. It was regulation for regulation’s sake.
Wallison wants Dodd Frank to be repealed, arguing that the housing market meltdown and subsequent financial crisis in 2007-2008 “was principally the result of the U.S. government’s housing policies,” not a lack of regulation.
Utah Sen. Mike Lee, in a recent commentary, maintains that home prices are soaring not because of healthy housing demand, but because of “government regulations (that) artificially inflate the cost of building new units.”
He’s got a point. A recent study by the National Association of Home Builders estimated that regulatory costs have surged 30% in just the last five years, thanks to the Obama administration’s heavy-handed regulatory response to the financial crisis.
And it’s about to get worse. A whole new raft of regulations are in the works, distorting the housing market further with growing risks to our economy.
The Consumer Financial Protection Bureau last October implemented a new Dodd-Frank rule that requires extensive new “compliance” forms and waiting periods for each mortgage deal. As the Heritage Foundation’s John Ligon wrote earlier this year, “The 2010 Dodd-Frank Act confuses endless red tape for effective reform of housing finance.”
Meanwhile, the Department of Housing and Urban Development has issued a new rule with the innocuous title, “Affirmatively Furthering Fair Housing.” In fact, says Sen. Lee, this innocent sounding rule is nothing less than an attempt by the Obama administration to put in place a national zoning board with control over local neighborhoods.
“If they don’t believe your neighborhood is ‘diverse’ enough, they will seize control of local zoning decisions — choosing what should be built, where, and who should pay for it — in order to make your neighborhood look more like they want it to,” Lee wrote.
Enough. Dodd-Frank is a bad law that has had awful consequences. So let us repeat: It’s time to end this nation’s failed experiment with top-down government control of housing, and let markets once again do the job that they do best. If not, we may soon face a housing-related financial crisis worse than the last one.