AND WHERE DO YOU PUT THE NEXT 100 MILLION?:

Loosen Housing Markets (Reihan Salam, February 9. 2009, National Review)

What is the cause of the affordability crisis? Although high demand for housing should mean a high rate of housing construction, which in turn should keep prices low, New Jersey is one of several states in which high demand runs into severe supply constraints at the local level. For the most part, this is motivated by simple NIMBYism: Homeowners and historic preservationists want to keep their towns construction-free, if only to keep property values high.

As economists Edward L. Glaeser and Joseph Gyourko explain in Rethinking Federal Housing Policy, the home mortgage interest deduction, which is designed to increase the availability of owner-occupied housing, has a perverse effect in supply-constrained regions: Instead of making it easier for people to buy houses, it simply bids up the price. To help ease the problem, Glaeser and Gyourko propose capping the home mortgage interest deduction in supply-constrained counties to $300,000 of mortgage debt rather than $1,000,000. The revenue generated by the lower cap would be given to local governments that allow new construction.

There is a real political risk here. In the short term, affluent homebuyers will feel the pinch of the lower cap. At the same time, however, this measure will put the GOP on the side of those middle-class families who can’t afford decent housing, a large and growing constituency.

Once immigration reform passes you're not only going to have millions of people who are already in the underground economy eligible to buy houses but tens of millions more will be coming and these are people who actually reproduce. We have nowhere near the housing stock we require for the next several decades.

Posted by Orrin Judd at February 6, 2009 8:43 AM