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News Link • Economy - Economics USA

Kamala Harris's Economic Ignorance and the Housing Affordability Crisis

• https://www.lewrockwell.com, By Jeremy R. Hammond

The Misdiagnosed Cause of Unaffordable Home Prices

In her recent interview with Bret Baier on Fox News, Democratic presidential candidate Kamala Harris said that she would solve the housing affordability crisis by lowering home prices, which she proposes to do by increasing the supply of houses.

That alone reveals her economic ignorance. The reason housing costs are so high is not a lack of supply. There are plenty of houses. They are just unaffordable.

In fact, there is a housing surplus remaining from the building boom that occurred during the housing bubble that burst in 2007, which precipitated the 2008 financial crisis. In the wake of the bubble, because there were already so many new vacant homes, there was necessarily a reduction in construction activity relative to growth in households. The vacancy rate naturally decreased as the supply and demand moved toward equilibrium—which was, of course, a good thing.

The argument that the problem is a "housing shortage", however, treats that reduction as though it were a bad thing, as if construction activity should have just continued along the same trajectory it was on during the bubble.

The misconception that the problem is a housing shortage is propagated by the Federal Home Loan Mortgage Corporation, or "Freddie Mac", which is a "government sponsored enterprise" (GSE) that was established in 1970 to create what the government considers to be "competition" with its sister organization, the Federal National Mortgage Association, or "Fannie Mae".

Fannie Mae was established as part of "the New Deal" in 1938 to provide liquidity to the fractional reserve banking system, the goal of which was to ensure that the banks had enough capital on hand to be able to make more loans. Why? Because clueless politicians believed then, as they do today, that economic growth comes from mere borrowing and spending as opposed to being a product of savings and capital investment.

Government policymakers also perpetually fail to understand the critical role in the economy of market prices, which are the signals that investors and entrepreneurs use to make decisions about how to efficiently direct scarce resources toward the most productive ends as determined by the will of consumers, which is to say, by all of us. The bureaucrats think that they know better than we do how our hard-earned dollars out to be spent, and they utilize the monopoly on violence known as "government" to get their way.


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