Government Intervention in the Real Estate Market
Whenever you speak to real estate professionals, it seems the market is always improving. Things are just moving along and everything is right with the world. If there is one thing that you can’t accuse real estate brokers of being, it is being pessimistic. However, if you question them in any depth a different picture emerges.
A couple of things become obvious. One is that real estate investment and the home market, though anecdotally improving, is still in the doldrums. Second is that the sustainability of any improvement, anecdotally or not, is far from certain. Real estate, like so many industries in the United States, is government subsidized. Like agriculture, real estate investment and home ownership has been propped up by tax incentives and cheap government-induced mortgage rates.
No rational, intelligent person believes that the United States has anything close to an unfettered market-based economic system. When we, as a nation, first began to tame the Darwinian capitalism of the early 20th century, the government was looking to support the everyman against the robber barons. Sometime beginning in the middle of the last century, the government no longer was concerned with the betterment of the everyman, and despite the rhetoric, they regulated the economy in the interest of big business and big labor.
Subsidies for everything from pig farming to car making to real estate became the norm. The notion of the “greater good” continued to be spoken of in platitudes, but in reality, what our politicians were after campaign contributions. Republican or Democrat affiliation really made no difference. As is all too common, the saying “money talks” was all that mattered regardless of party affiliation.
By the time of our most recent crises, the everyman no longer mattered at all. In fact, the new robber barons of today have become the beneficiaries of huge government subsidy and largess at the expense of the masses. The Carnegie”s of the late 19th and early 20th century could only dream of having not only a friendly government but one that supports the behemoths to the detriment of the rest of us.
Real estate home sales last month were at their lowest since 2001. With the end of the tax credit and the still lingering recession most people did not feel comfortable in purchasing a new home. But when did it become “un-American” to rent? Not every American has the financial wherewithal to own real estate. There is nothing inherently evil in renting. The government does not have to support artificially high levels of home ownership through policy decisions in order to prop up the real estate industry.
As a nation, we need to ask whether we want to continue with this form of crony capitalism. The continued subsidization of our large businesses and labor unions cannot continue if we intend to get our fiscal house in good shape. In order for us to build an economy that can be sustained, we need to change the way we incentivize and tax. Contrary to what my real estate colleagues believe, the industry and the nation cannot continue on the path of subsidy in order to sell more and more homes to less and less qualified buyers.
