Effective central planning has been a dream of dictators and elected governments alike for centuries. It failed miserably for the Soviet Union and everywhere else.
Central planning via Fannie Mae and Freddie Mac, at a huge tax and inflation cost to Americans, was designed to achieve a specific homeownership rate but has failed. A Washington Post article showed data from the last two decades of massive investment has ultimately increased housing costs. Fannie Mae’s stated goal is to increase home ownership rates by providing greater access to mortgage financing. Simple economics would tell us that this will increase demand and put upward pressure on real estate prices. Increasing housing prices makes housing less, not more, accessible to people.
The big investment started 20 years ago in 1994. Today, home ownership is 63.9%, the exact same rate as in 1994. Home ownership is only up 1% from 50 years ago.
Jason Hartman comments, “Hopefully readers can see that big government, special interest groups and central planners have only made things worse. It’s no surprise that the figure has retraced its statistical steps since the housing market began to tank in 2007. I have long said that I believe the home ownership rate should decline. My sense tells me that the home ownership rate should be somewhere around 50-55%.”
Hartman continues, “It was never really the case that the quality of our democracy hinged on a particular rate of home ownership, as long as people are generally free to own their own homes, of course. Germany, Denmark and the Netherlands are all strong democracies with lower rates of home ownership than the United States, according to data compiled by San Diego State University economist Michael Lea.”
There’s no free lunch in nature or in life. On episode 473 of Hartman’s show his guest David Porter talks about ‘the free lunch metric’ and how it applies to real estate investing.
Unintended consequences often occur during or after Government programs that attempt to shift demand in free markets. The Car Allowance Rebate System (CARS), colloquially known as “cash for clunkers“, created a scarcity of used cars. This drove used car prices up so many people in the market for a used car were locked out because they couldn’t afford it.
The unintended consequence of the central planning of the housing market over the last 20 years and the crash of 2007, was many homeowners being displaced due to foreclosure. This has been a boon for investors. There are more good properties producing excellent return on investment as well as a huge volume of people seeking rentals.
Hartman says, “Why does this situation matter to investors? Because one of the talks we had two or three years ago at my Meet the Masters event was titled, ‘Six Years, Six Million New Renters.’ And, by the way, we’re on track! It’s looking like that’s going to happen because every 1% in drop in the home ownership rate equates to approximately one million new renters. That’s really good news for investors.”
To learn more about Jason Hartman go to: http://www.JasonHartman.com/podcast or search “Jason Hartman” on iTunes, Stitcher Radio or SoundCloud.