If it's in the News, it's in our Polls. Public opinion polling since 2003.


Housing: A Healthy Bust

A Commentary By Froma Harrop

Just as busts follow booms, booms are supposed to follow busts. But there has been no boom, not even a boomlet, to light a candle in the gloom of the housing collapse. Many economists thought that a recovery from the real-estate meltdown that started in 2007 would be well on its way by 2011.

The unhappiness is understandable. But some extension of this pain would not be a terrible thing in the long run.

The latest news shows new home construction down almost 11 percent in April from March, and housing starts were off by 24 percent from a year earlier. The causes are weak demand in a tough economy and hard-to-get home loans, but also a heavy dose of negative reinforcement.

Negative reinforcement is a principle of behavioral psychology whereby repeated punishment reduces the likelihood that a human or rat will continue doing something. If whenever the rat hits a lever, he gets a shock, he stops pressing after a while.

A parade of shocks on the housing front is delivering Americans much negative reinforcement. And they need it.

An American mystique about home ownership has kept us ignoring history and going back for more and bigger houses. In the recent real estate bubble, consumers who couldn't afford it desired far grander digs than a simple nest with room for the chicks. They wanted media rooms, wine cellars and hotel-sized kitchens opening onto three-car garages.

And they had the federal government cheering them on. Washington has long let homeowners deduct mortgage interest from their taxable income, thus encouraging bigger home loans. It has kept interest rates super low, providing incentive to borrow larger sums. And in the boom, because homebuyers could borrow more, they could pay more for houses, thus launching real estate prices into outer space.

Only constant negative reinforcement will change a society that never seems to learn that home ownership is not the low-risk path to wealth and happiness. In the 1920s, Americans gorged on Florida real estate, some of it underwater. The Depression came, and -- ka-boom! -- property values fell like a rock in the Everglades.

Shabby lending practices and deregulation during most of the 1980s set off another real-estate stampede. That run-up in house prices went south late in the decade as lenders, chiefly savings and loans institutions, went bust in another financial scandal.

Then as now, scams and the collusion of government had created a market of glass, leaving taxpayers to pick up the shards. Then as now, a busted housing sector hurt the larger economy.

Only it's worse now.

The temptation for government to extend yet more support for housing is great but must be resisted. Granted, Washington can't abruptly stop the federal loan-guarantee programs that currently back nine out of 10 mortgages. They are nearly all that's left holding up the sickly market.

However, the Feds are eyeing the beginning of the end for subsidies that help feed real-estate frenzies and, besides, make no macro-economic sense. One fix already on the way is a cut in the size of home loans that the federal government will guarantee -- now as high as $729,750 in the most expensive communities -- to $625,500.

Another worthy proposal is to reduce the size of mortgage debt on which interest may be deducted from taxes. The current maximum is $1 million. Eventually, no mortgage interest should be deductible. (Ignore the screams, and arguments, from the real estate interests.) There is no mortgage-interest deduction in Canada, and rates of homeownership there are comparable to ours, and the economy a lot healthier.

In the meantime, let the pounding bad news on housing change American attitudes toward homebuying -- and start moving the government out of the business of egging on the worst behavior.



See Other Political Commentary.

See Other Commentaries by Froma Harrop.

Views expressed in this column are those of the author, not those of Rasmussen Reports. Comments about this content should be directed to the author or syndicate. 

Rasmussen Reports is a media company specializing in the collection, publication and distribution of public opinion information.

We conduct public opinion polls on a variety of topics to inform our audience on events in the news and other topics of interest. To ensure editorial control and independence, we pay for the polls ourselves and generate revenue through the sale of subscriptions, sponsorships, and advertising. Nightly polling on politics, business and lifestyle topics provides the content to update the Rasmussen Reports web site many times each day. If it's in the news, it's in our polls. Additionally, the data drives a daily update newsletter and various media outlets across the country.

Some information, including the Rasmussen Reports daily Presidential Tracking Poll and commentaries are available for free to the general public. Subscriptions are available for $4.95 a month or 34.95 a year that provide subscribers with exclusive access to more than 20 stories per week on upcoming elections, consumer confidence, and issues that affect us all. For those who are really into the numbers, Platinum Members can review demographic crosstabs and a full history of our data.

To learn more about our methodology, click here.