A downside of high housing prices - unaffordable housing for low and middle class families:

 
  The Housing Crisis Goes Suburban, by Michael Grunwald, Washington Post: …Seventy years after President Franklin D. Roosevelt declared that the Depression had left one-third of the American people "ill-housed, ill-clothed and ill-nourished," Americans are well-clothed and increasingly overnourished. But the scarcity of affordable housing is a deepening national crisis, and not just for inner-city families on welfare. The problem has climbed the income ladder and moved to the suburbs, where service workers cram their families into overcrowded apartments, college graduates have to crash with their parents, and firefighters, police officers and teachers can’t afford to live in the communities they serve.

    Homeownership is near an all-time high, but the gap is growing between the Owns and the Own-Nots — as well as the Owns and the Own-80-Miles-From-Works. One-third of Americans now spend at least 30 percent of their income on housing, the federal definition of an "unaffordable" burden, and half the working poor spend at least 50 percent of their income on rent, a "critical" burden. The real estate boom of the past decade has produced windfalls for Americans who owned before it began, but affordable housing is now a serious problem for more low- and moderate-income Americans… Yet nobody in national politics is doing anything about it — or even talking about it.

    For most of the past 70 years, housing was a bipartisan issue. In recent decades, its association with urban poverty made it more of a Democratic issue. But now it is simply a nonissue. The current crunch falls hardest on renters in Democratic-leaning cities and metropolitan areas, but Democrats have ignored the issue as resolutely as Republicans. …

    "Even 10 years ago, that would have been unimaginable," says Ron Utt of the conservative Heritage Foundation. "But now the problems are so much worse, and nobody cares. . . . I find myself on panels where I’m the token conservative, and I’m the one asking: Doesn’t anyone care about affordable housing?" …

    Overall, the number of households receiving federal aid has flatlined since the early 1990s, despite an expanding population and a ballooning budget. … Today, for every one of the 4.5 million low-income families that receive federal housing assistance, there are three eligible families without it. … It sounds odd, but the victims of today’s housing crisis are not people living in "the projects," but people who aren’t even that lucky. …

    The root of the problem is the striking mismatch between the demand for and the supply of affordable housing — or, more accurately, affordable housing near jobs. … [W]orkers are enduring increasingly long commutes from less expensive communities, a phenomenon known as "driving to qualify."… This creates all kinds of lousy outcomes — children who don’t get to see their parents, workers who can’t make ends meet when gas prices soar, exurban sprawl, roads clogged with long-distance commuters emitting greenhouse gases. …

    Moderate-income families aren’t able to buy Lamborghinis or Armani, but they can buy cars and clothes. So while it’s obvious why they can’t afford McMansions, it’s not so obvious why they can’t afford decent housing. They demand it. Shouldn’t the market supply it?

    The answer is yes. But in many communities, local regulations have stifled multifamily housing and even modest single-family housing. Minimum lot requirements, minimum parking requirements, density restrictions and other controls go well beyond the traditional mission of the building code and end up artificially reducing the development of safe, affordable housing.

    The unfashionable but accurate term for these restrictions is "snob zoning." Suburbanites use them to boost property values by keeping out riffraff — even the riffraff who teach their kids, police their streets and extinguish their fires. Urbanites are susceptible to the same NIMBY impulses, often couched as opposition to "traffic congestion" or "overdevelopment" or protection of the neighborhood’s "character." It’s easy to support affordable housing in someone else’s neighborhood…

    Los Angeles is considering a bond issue that would create 1,000 units of affordable housing — small comfort to those 620,000 families in overcrowded apartments. Economist Christopher Thornberg notes that California’s private market added 120,000 urban rental units in 1987; in the first half of 2006, the total was just 232. The main obstacle, Thornberg concludes, is "the intransigence of local zoning boards."

    In other words, the best thing local officials can do to promote affordable housing is to get out of the way — stop requiring one-acre lots and two-car garages, and stop blocking low-income and high-density projects.

    Washington politicians … have the federal budget at their disposal. But Congress hasn’t supported new construction since the Low-Income Housing Tax Credit of 1986, which creates nearly 100,000 units of affordable housing a year, enough to replace half the units that are torn down or converted to market rents. Bush proposed a home-ownership tax credit during his 2000 and 2004 campaigns, but it turned out to be the rare tax cut he didn’t pursue. … The only affordability ideas with any traction at the national level are not really housing ideas; for example, one way to make housing more affordable to workers would be to raise their incomes — through higher minimum wages, lower payroll taxes or an expanded Earned Income Tax Credit. …

    Eventually, politicians may rediscover housing — not as an urban poverty issue, but as a middle-class quality-of-life issue, like gas prices or health care. Homeownership is often described as the American dream, but these days many workers would settle for a decent rental that won’t bankrupt their families.

Mark Thoma

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The field of economics is corrupted by large financial institutions, government agencies and trade organizations. Most economists employed in by these bodies have an institutional bias they have to promote in their writings. The government has to paint a positive picture of the economy and lend credibility to policies that favor whichever party is in power at the time. Trade organizations like the National Association of Home Builders and the National Association of Realtors want to spin economic news in a way that creates more business for their members. Wall Street economists, of course, are the worst of all, consistently urging the public to buy when their firms want to sell and to sell when their firms want to buy.

The polite explanation for the inaccuracy of economic forecasts is that economics is an inexact science, but I believe the truth is that economics is inexact by design. The Nobel Prize in Economics typically goes to an individual or team that does a very good job of rationalizing why rich people must be rich and why poor people must be poor. University economics departments tend to go along with the status quo because of a revolving door with industry and a need to help lead graduates into jobs with corrupt institutions. There are certain, unwritten rules of politeness that prevent “respectable” economists from telling things like they really are.

Economic analysis is not especially difficult, and it is not surprising that a vast number of websites have sprung up on the web attempting to give better analysis than that which is given by the economic establishment. Many individuals and organizations have created websites that call it like they see it, and this blog fits into that classification. These opinions are often branded as “gloom and doom,” “fear mongering,” “conspiracy theories” or with other derogatory terms in an attempt to discredit the views expressed, although the arguments are seldom countered in a rational manner.

Having observed and followed the “Economics Underground” (as I choose to call it) for several years, I find it to be a valuable source of information, but also susceptible to a form of groupthink that often leads to false conclusions. Indeed I started this blog because I feel the Economics Underground is totally missing the story of the Rebalancing process.

Economic Undreground sites tend to focus entirely too much on Austrian Economics, the Gold market, and manipulative actions by major financial institutions. While the Austrian school offers much to the understanding of economic conditions, we are now living in a Keynesian world, and the rules of the game have been altered. Booms and busts are still very much a part of the landscape, but credit contraction and deflation are not the dominant forces that Austrians tend to predict. Many in the underground elevate gold to a standard that is not realistic in the modern world. The actions of financial institutions are two often assumed to be manipulative or part of a larger conspiracy.

In general I think the Underground looks for clues in the right places, but does not view events in the proper degree or with an open enough mind. To the extent that members of the underground seek to gain attention with radical claims the educational goals of the underground can be undermined. To the extent that the underground fails to thoroughly debate its claims and accusations, it fails to improve its message and arrive at a better understanding of the economic landscape.
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