Subsidizing Home Purchases: Good Idea?

[powayseller]

I question whether subsidizing home purchases is wise.

This UT article is about subsidizing purchases and rents. I am in favor of the latter, although raising wages would be better than giving handouts.

Anyway, like so many articles, this one is poor on explanations. What is the ultimate financial responsibility of the homeowners? Does the state give grants, temporary payment relief, or what?

Does anyone know how these programs work? Are these people already upside down on their mortgage?

Let’s subsidize rents, but let’s not put more people upside down on their mortgage. Does this low income group have a lower mortgage default rate than subprime borrowers? What is the consequence of these programs for the borrower and for the County?

[ucodegen]

Subsidizing rents will not work. It will create an artificial demand for rental property which will drive up rents. This then makes the overpriced houses look cheap. It boils down to supply and demand. You increase demand with a constant supply, prices go up. Both rents and the prices of houses are out of line. A place that I rent looks like it will increase its rents about 7% next year. They are ignoring their own vacancy rates, that people are considering moving out and that several apartment buildings were recently constructed and have opened up. Their justification is that their ‘market surveys’ are showing the increase is justified.

What will happen with the foreclosed homes, is that they will either be resold on the market at significantly reduced prices or will become available for renting. This will increase the supply of housing, allowing for decreases in rents etc.. provided we don’t screw with the demand portion of the equation.

There will be a period of tightening of belts.. but that follows any overindulgence.

Also follow the money.. lessee.. subsidizing rents, allowing high rents to persist, causing the real-estate entities to have higher than normal profits… yeah right, just continuing the same ole problem. Some of the entities who build the overpriced houses also build and operate apartment complexes (BRE/KB for example).

BTW, having higher than normal rents is real. I checked the recapture of construction costs on the place I am in, and they covered the cost of construction (including land) in under 6 years.

PS: If you want to effect a reduction on rents, particularly considering that the builders of houses are also the same ones operating several apartment buildings, don’t subsidize rents. Instead, look at rent control.

[rseiser]

Doesn’t rent control fall into the same category of trying to defy free markets. The common wisdom on that is: If landlords aren’t allowed to charge high market rents, then nobody will build or develop any apartments for rent, leading really to a shortage down the road, with even higher prices for the overall system. I think we all agree that there is nothing wrong with the current system of a free market. I think we don’t blame people paying more for a place in San Diego than somewhere in the Mid-west, or that prices will rise when people are moving to places where the land area is small. What we do complain is that the government does interfere with free markets, by fostering speculation (Home-ownership Society), subsidizing loans/removing risk (Fannie Mae), Prop. 13 (subsidizing the status quo), forcing interest rates down to 1% (less than the rate of inflation), exempting capital gains when lived in for two years. These are all mechanisms that blow up prices artificially in the short-term, but do nothing long-term, since they are either reversed (interest rates) or at least reach a new plateau from which new incentives would be needed.

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