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Subsidizing Choices Distorts Markets


Rent seeking is the name of the game: where special interests seek special dispensation from government in order to improve their position in the market place. Today we have J. Ron Terwilliger advocating for more government intervention and support of his business. (link)

Mr. Terwilliger says we have a crisis of affordable housing. He says in order to create affordable housing, the building industry needs subsidies. In nutshell, that is his point. He wants subsidies for his industry. But if we don’t have enough affordable housing, where are all the people staying? Are they homeless? No, we’re told the homeless population is actually fairly small. What Mr. Terwilliger wants is for people to feel sorry for those who choose to spend a fairly large proportion of their income on housing.

Now Mr. Terwilliger doesn’t put it in those terms, he writes: “Today, millions of American families live in homes that consume ever-larger chunks of their household budgets. According to Harvard’s Joint Center for Housing Studies, nearly 20 million families spend over half their incomes just on housing. More than one-third of all households, almost 41 million in total, pay in excess of 30 percent to cover housing costs.”

Isn’t that a choice? If you decide to pay more for housing, isn’t that a choice you make? I give you some examples. I have 5 daughters. The oldest spends a great deal of her income on housing. She makes good money, in excess of $60k per year, and she wants a nice place, in a particular area of town. She is willing to pay for it. The second has the reverse philosophy. She wants to live someplace that leaves her money to spend on other things. The third lives in a neighborhood good to raise children in that is in a county where she likes the schools. She has money left over, but not much. The fourth lives in a condo she’s buying in a nice, close in neighborhood. But she, being frugal, has money left over for a car and savings. The fifth is in college renting. My son, he’s in college too. Going in debt for his masters in EE. Which should we feel sorry for? The oldest, who made a choice to spend a large percentage of her income on housing. The one whose demographic is supporting Mr. Terwilliger’s company in its quest to build expensive housing for those willing to pay for it? The one who spends the largest proportion of her income on housing, because that is what she chooses to do?

Let me be clear: most of us CHOOSE to live in larger and fancier homes than we need. We do the same with cars. We buy cars to reflect our self-image or desire for status. If we chose smaller and less fancy housing, we would not be in the situation Mr. Terwilliger decries. Would he have us change our behavior? No, that would hurt his business which is focused on supplying those exorbitant wishes.

Further, Mr. Terwilliger tells us: “The national homeownership rate now stands at 63.9 percent, its lowest level in 20 years. The homeownership rates for Hispanic and African-American families have fallen precipitously from their pre-recession highs. Perhaps most significantly, the share of total home purchases by first-time homebuyers has hit a 27-year low, with student loan debt and higher rents among the factors making it more difficult for young adults to save for a mortgage down payment.”  What he doesn’t tell us is why this homeownership rate is despicable. It sounds good to me. It sounds great to me. 64% of the people own homes. Why should it be higher? Which is more important, having a place to live or owning it? Why is owning it so important? Some people should rent so they can pick up and leave for new environs when their situation calls for it. There are other reasons to rent. Owning is nice if you can handle the responsibility. But what of those who can’t. This he avoids.

Not everyone is equally capable of handling money. Some people have difficulties with it. They just don’t budget well: money burns a hole in their pocket. They shouldn’t own homes, but should rent. Then when a problem comes up, the landlord fixes it. Neither does he address how government is part of the problem of high rental costs.

Not so many years ago a person could rent a room, much like an old style dormitory, with the bathroom at the end of the hall. Because the costs of building were lower, rents were low enough people with low incomes could afford to rent. But along come the do-gooders and decided those styles of living arrangements were not good enough. How many of the people renting this type housing became homeless? It is this type thinking which helps make housing more expensive. Perhaps Mr. Terwilliger should work towards relieving the market of the onerous regulations which artificially increase the price of housing instead of looking for a subsidy.

Without meaning to, what Mr. Terwilliger has reminded us is how every time government goes to fix something, it causes another problem to arise. Then it must fix that problem too, which gives rise to another problem. The spiral never ends. Government becomes the problem while it was never the answer.


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