Wednesday, January 5, 2011

Changing the cost of owning homes

Republicans are charging into Washington waving their "mandate from the people" to make fundamental change in government.
I hope they do, but that sort of change will not be accomplished by cutting spending -- although that will help. Real change requires new laws that end government interference in people's lives and in the economy.
To give an example, it is against the law to hold up a bank or to write a bad check, that is call theft. But people are allowed to live for some time in houses that they do not pay for, and the government protects them from being promptly evicted for non-payment. That is not considered theft.
It is against the law to break a contract, even a verbal implied contract in some cases, but it is commonplace to break a lease or a mortgage without penalty.
The difference is that the government has stepped in an said that people cannot be thrown out of their homes without due process -- and that process can stretch out for months and even years.
That is an admirable cause, if you imagine that those being kicked out are old people, or sick people or people with small children and then imagine how those people will suffer at being homeless.
But it also includes people who take advantage of the law to live for free as long as they can get away with it.
But whether you believe it is right or wrong to protect this one category of people who do not pay or do not live up to their contracts.
Housing is one of the few areas where the burden of paying for the free housing for those non-payment -- whether they are sympathetic causes or freeloaders -- not on the government, but on the owners of the properties or the banks who have loaned money on the properties.
In that sense, it is a narrowly focused tax on a group of people who have given no reason for deserving such a tax other than that they have property to rent or money to loan.
And, as we have found after the recent housing value implosion, such laws are a factor in the slow recovery of the housing market.
Why? Because when property values were constantly rising, those owning property or lending money secured by property, could afford this extra tax.
When property values continue to drop, there is real resistance to buying more property because the tax adds to the overall cost of owning the property.
There are two choices here for government -- it can change the law to make the penalty for non-payment of rents and house payments equal to other kinds of theft, or it can continue to shield non-paying renters and home-buyers but take the expense away from the owners and lenders and pay for it with general tax money.
Until that law changes, recovery in housing will wait until the value of property is again reliably increasing in value enough to offset the extra tax for owning it, or lending against it.


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