Housing is the largest single form of fixed capital investment in the United States. This should come as no surprise in a country where owning one’s home is part and parcel of the American Dream. More than 68 percent of U.S households own their own homes, making America the envy of the industrialized world. In 1940, one unit in five contained more people than rooms; four decades later fewer than five in 100 were so crowded.

From another point of view, however, the American Dream is in trouble. Today’s homeownership rate, while impressive, is not growing nearly as fast as it did over the period 1950 and 1980.
It is no easy matter to understand the dynamics of the U.S. housing market. The accessibility of home ownership depends on a bewildering array of factors including the operation of quasi-government entities such as Fannie Mae and Freddie Mac, the federal tax code, labor regulations and not least of all Federal Reserve monetary policy. Housing discrimination, failed public housing programs, rent controls and restrictive zoning laws characterize the existing hodgepodge of policies.

A Primer on U.S. Housing Markets and Housing Policy offers a most welcome clarification of the miasma surrounding the housing market. This slim, accessible volume, authored by Richard K. Green and Stephen Malpezzi and published by the Urban Institute Press, adeptly explains the economics of the housing debate, not only for the competing stakeholders in this debate, but also for the general reader.
Getting a handle on the housing issue is certainly a challenging task for the authors, since each stakeholder – policymaker, homeowner, renter, banker, planner – brings a different view to the table.

Not least among the issues is whether government should become more active or simply get out of the way. As economists, Green and Malpezzi stand in the middle. The authors maintain a fidelity to the superiority of the private marketplace. They note that publicly subsidized housing crowds out private housing and, as a result, has a negative economic rate of return.

With its multitudinous implications for the economy as a whole, “Shelter is one of those areas, like education, that cuts across concerns for both efficiency and equity.” Economists are challenged by the goals of other social scientists. As the authors note, housing is not a “homogenous good like wheat or oil, so that simple textbook models of demand and supply are only a starting point for analysis.”

The authors do not dwell on the question whether housing is or should be an entitlement enshrined in a social contract. Avoiding this noisy, misguided debate is a useful approach. No deference is given to rent control and much faith is placed on the novel idea that improving the economy is a good way to make housing more accessible.

Some of their recommendations (converting the widely popular tax deduction into a tax credit and spending more on public infrastructure) will be received with skepticism. Others (scrapping or reforming restrictive zoning practices) will prove more welcome to free-market advocates.

How best to promote home ownership is among the important issues that municipalities, states and federal government officials must confront. The growing “intergenerational storm” will drive up the costs of housing, as economic insecurity and the volatile stock market increase the demand for real assets such as a home. This book will prove most valuable to policy makers charged with weathering this storm.

Format revised on 30-Aug-2004 3:21 PM