Underwater Home Traps Driving Unemployment
by David Atkins
Chris Mims at Grist highlights a Brookings Institution report showing that the rise in homeownership is helping drive up unemployment numbers:
The U.S. is suffering crushing unemployment, yet workers can’t move to where the jobs are because they are trapped in underwater mortgages, explains a new report from Brookings. This, it turns out, is the ultimate fate of the “ownership society” that our government has been pushing for so long through Fannie, Freddy, and tax policy: People can’t migrate to where they’re needed most, even if their livelihood depends on it…
The data show that not only are people less likely to move from one state to another, they’re also failing to move even within the same county — say, to upgrade to a slightly better job across town, or shorten their commute.
The “ownership society” is one way of putting this. Another way of putting it, as I have said before, is priotizing assets over wages:
American public policy on both sides of the aisle reoriented itself away from a focus on wages and toward a focus on assets. Specifically, the idea was that wage growth was dangerous because it led to core inflation in a way that asset growth did not. American foreign policy became obsessed even more than it had been with maintaining access to oil, both to prevent future oil shocks and to prevent inflationary oil spirals. Wage growth was also dangerous because it would drive increasing numbers of American corporations to employ cheaper overseas labor.
But that left the question of how to sustain a middle class and functional economy while slashing wages. The answer was to make more Americans “true Capitalists” in Reagan’s terms. Pensions were converted to 401K plans, thus investing about half of Americans into the stock market and creating a national obsession with the health of market indices. Regular Americans were given credit cards, allowing them to take on the sorts of debt that had previously only been available to businesses. Most crucially, American policymakers did everything possible to incentivize homeownership, from programs designed to help people afford homes to major tax breaks for homeownership and much besides.
The greatest mistake of the Obama Administration has been a futile and misguided attempt to continue these policies, rather than reorient the economy toward a more sustainable and more just future.
In terms of homeownership policy, the right move is neither to try to reinflate the housing bubble nor to foreclose people out of their homes, but to move people from ownership of a home they will never be able to pay for to renting said home at lower, more sustainable rates. This will in turn drive home prices lower (which is where they need to go), while allowing people to escape their location trap homes in pursuit of employment opportunities. Lower home prices with more difficult-to-acquire loans will in turn attract responsible buyers still currently priced out of the market, which will in turn help reinvigorate the economy over time.
Like the case of people holding onto jobs they don’t want in order to continue to have private health insurance, this is another instance where “ownership society” market policy actually creates economic inefficiencies so profound that they seriously impact the real freedom of consumers and wage-earners.
The only people who are more “free” under our current laissez-faire market-driven policies are the executives of lending institutions and health insurance companies. Everyone else is trapped in jobs they don’t want and houses they can’t move out of, while the blowhards on Fox News accuse anyone who tries to liberate these people as enemies of “freedom.”
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