The housing market mess; connecting some dots

It is getting time for a complete overhaul of the whole housing market in the US, rather than just messing with edges. Two different stories in the Minneapolis StarTribune this morning illustrate why.

First is the story about all the people applying for Section 8 assistance. Recently about 3,700 people took applications, for one of the 300 voucher to be drawn in a waiting list lottery for housing in Plymouth.

The turnout is a sign of a growing metro-area problem: a shortage of affordable housing. In fact, experts had predicted it. Each time a housing authority opens its Section 8 wait list, applicants overwhelm it.

Experts and housing advocates say the long lines point to a larger crisis in affordable housing: Paychecks have not kept pace with housing costs, and the supply of affordable housing pales in the face of growing demand. In 2006, one in eight Minnesota households was paying half of its income on housing, according to a census analysis by Minnesota Housing Finance Agency. That’s up from one in 15 in 2000. Renters in Minnesota are worse off. In 2006, nearly one in four renters was paying half her income on housing.

Second, we have a story about the trouble and costs of vacant foreclosed houses in the City of Minneapolis. The number of boarded properties has swollen from about 250 in 2005 to more than 800 now.

So on one hand we have an enormous demand for affordable housing. On the other hand a large number of vacant houses. Any Ideas?

If the “free market” really worked like all its advocates say, we wouldn’t have this problem.

But lets do more than connect those two dots. Lets look at the real problem. We do too much to encourage credit use and I really mean excessive credit use. This has increased home values to the point that many can’t afford a home. We need to stop.

Lenders should not be making loans which require half of the families income. That is asking for disaster and we we got it. It also encourages people to buy more than they can afford or need. The average American house size has more than doubled since the 1950s; it now stands at 2,349 square feet. (At the same time most families are getting smaller). Why do we need a house bigger than our parents house, especially when our families are smaller? Boxing in all that extra air, increases demand for materials raising the cost of construction. Stop McMansions. Tearing down 2 small homes that once each housed a family of 5 to build a single house for a family of 4, is asking for disaster.

Mortgage interest deductions should be capped at a low threshold if not eliminated. It also is encouraging people to get bigger loans, but really only benefits the wealthy. The benefit on a $112,000 loan 6% is $1680, on a $1,000,000, its $21,000.

How about encouraging smart infill housing, not tear down. Row houses, condo’s, and townhouse, not McMansions. One time home purchase assistance to all, not a mortgage interest deductions on million dollar homes.