An article that appeared in the January 19, 2026, edition of The New York Times focused on the legal status of "Fannie" and "Freddie," which the article identifies as "government-controlled mortgage giants." The article had the following headline in its online version: "Big Plan for Fannie and Freddie I.P.O. in Flux as Trump Pushes Affordability." Click the link I have provided to read that article.
The plan that the article says is now "in flux" was a plan by our current president to have our nation's largest banks sell shares of these two government-controlled mortgage-lending companies on a major stock exchange. As I am understanding this proposal, doing that would give greater control over residential mortgages to private investors, freeing these mortgage lenders from current government controls.
That does sound just like our current president - more benefits for the already-wealthy. Apparently, however, our current president is now having some second thoughts. "Fannie" and "Freddie," the two mortgage lending companies discussed in the article, were taken over by the federal government after the 2008 financial crisis, as a way to prevent their collapse and further disruption of the housing market. Maybe our current president is getting the picture that this might well happen again, if federal control is now relinquished, and that this kind of thing would not play well in the upcoming, 2026 and 2028 elections.
Thinking about mortgage financing under the current arrangements made me realize that there is a real opportunity to do something meaningful about housing affordability that has not yet been tried, at least to the best of my knowledge, and that might well have a dramatic effect on preventing the kind of housing price escalation that has been so evident in the last twenty or thirty years. My personal case is a good example of what has happened. A two-bedroom home my wife and I purchased in the 1970's cost less than $50,000 when we bought it. Several years later, we then expanded that home by adding two more bedrooms, boosting its then value to about $100,000. The home is now worth well over a million.
Hooray for me, right? Well, maybe, but ordinary income workers can no longer live in my town. I certainly couldn't afford to live here, myself, if my wife and I hadn't been able to buy our home back when we did.
Is there anything we can do to stop this kind of ruthless inflation of housing prices, which is going on all over the nation, and which is making it ever more impossible for any person who has an average income to buy a home (or to rent one, either)? Well, let's be honest. Not under our current system. There is no system of "price control" for housing, so housing goes to those who can pay the most for what is available. The "rich," in other words, will always outbid those who aren't, and if the rich want to buy homes on the market, they're going to win out over those who aren't so rich, and who are just ordinary working people looking for a home.
Seeing homes as "a good investment," which they have surely been, the well-to-do, and "private capital," are increasingly taking control over more and more real estate. The president's plan, as outlined above, would only make things worse, if I am understanding it correctly.
Is there a way to make things better, instead of worse? Here's my thought.
What if a home were not an "investment?" The wealthy are investing in homes because they think that they will be able to sell them, later, for significantly more than inflation. They can rent them in the meantime. What happened to my home is an example of what's happening, and this is happening everywhere in the nation, of course, and is especially happening in places like Santa Cruz, where my home is located, since this is such a desirable place to live.
When you go out to buy a home in Santa Cruz, you aren't bidding against other local residents and local workers. You're bidding against people from all over the United States, who earn a lot more than you do. That's why simply building "more" doesn't reduce the price. If the number of "buyers" was fixed, and more housing was built, prices would stabilize. However, the number of "buyers" is virtually infinite. Not only would those living throughout the entire United States, and in fact the entire world, be likely to "outbid" local residents and workers, "investors" from the world over would be competing against the local worker-resident, too.
More housing built simply does not bring the price down. Those who put their faith in "supply and demand," with more "supply" supposedly helpful in lowering the price, are badly mistaken when we start talking about Santa Cruz (and places like Santa Cruz). The new supply is minuscule, compared to the untapped, huge, worldwide "demand," and local working residents just can't outbid the rich. This is not just a Santa Cruz problem, but we have one of the worst housing markets in the entire nation, and that is clear proof that building more doesn't solve the problem.
There is, though, I think, something that could make things better.
What if the price of a home did not increase over time? What if the price of a home when sold was the same price as the price it was when the home was purchased? Well, "investors" would not have any reason invest in homes, because the price they could sell for later would be the same price as the price they bought the home for (always taking inflation into account, though). Investors would go out and put their money into something that they thought would make money, as opposed to buying a home, which would not increase in value as time passed.
But how could that actually be arranged? The government can't just pass a law to that effect. That would be an unconstitutional taking. However, if purchasers of homes had to encumber their home, when they bought their home, and put such a price restriction on the home, then that would be constitutional. And what if that is what mortgage lenders demanded?
In other words, what if "Fannie" and "Freddie" conditioned their loans on the purchaser placing such an encumbrance on the home? If they were controlled by the government (working, at least supposedly, in all of our best interests), a mortgage lender could be required to provide purchase money to an ordinary income homebuyer, at a very advantageous interest rate (say 2.5%, instead of, say, 6%) on the condition that the homebuyer place a perpetual encumbrance on the property being purchased, ensuring that any future sale of the property would have to be at the same price for which the property was being purchased, plus inflation.
Prices would come down. Private investors would not be competing with ordinary working folks. Only people who wanted a home to live in would be interested in buying a home
This is just an idea to think about - and that's just what that article in The Times made me do. It made me think about that.
Image Credit:
No comments:
Post a Comment
Thanks for your comment!