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In recent years, the private housing market has seen the coexistence of feast and famine. Part of it was a bubble economy that produced windfall gains for some and ultimately invited a crash. Elsewhere, as rents followed prices upward and conservative administrations withdrew subsidies for affordable housing, tens of millions of people were paying more than a third of their incomes for shelter. Many more were doubling up or enduring two-hour commutes to work from distant small towns where prices were still relatively low.
The housing crisis creates an opportunity for government to connect millions of foreclosed-upon houses with millions of aspiring homeowners and renters seeking affordable shelter. The missing ingredient is subsidized mortgages and creative community lenders. A bold program along these lines would brake the slide in housing prices by subsidizing the purchasing power of new occupants.
One of the many perverse things about the subprime industry was that it advertised itself as the friend of moderate-income homeowners. But by offering them bait-and-switch loans with teaser rates that soon reset to interest rates that might make the Mafia blush, these lenders robbed people of their dreams. If we want to help people of modest means acquire homes, the proven way is not to charge exorbitant rates but to use subsidized mortgages with below-market rates, coupled with counseling. There are plenty of proven models, such as the fine work of Shorebank of Chicago, near Obama’s old neighborhood, or Neighborhood Housing Services, both of which help moderate-income Americans realize secure homeownership. All that’s lacking is adequate federal subsidy.
For the more complex reform projects of the new administration—restoring a secure financial system; revising trade priori¬ties; expanding the supply of good jobs; devising a path to secure renewable energy; moving toward universal health insurance—it makes sense for the new administration to take some months to plan, and then to build support in the country. Task forces in each area could tender reports while the emergency business of stopping a slide toward depression proceeds.
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