Two Views on Housing Policy

Yesterday, Greg Mankiw linked to two articles commenting on a Treasury Department proposal to issue mortgages at 4.5%; Glenn Hubbard and Christopher J. Mayer approved of the plan, Edward L. Glaeser and Joseph Gyourko do not. While Mankiw's observation is correct, I offer a second--Hubbard and Mayer are recommending a short term solution to the current crisis and Glaeser and Gyourko are recommending a long term solution to regional housing problems.

Glenn Hubbard and Christopher Mayer

Recent news articles suggest that the Treasury Department is considering a plan to offer a 4.5% mortgage for home buyers for a period of time. Let's hope it does. It would help arrest the decline in house prices that is at the base of the ongoing financial crisis and recession...Raising the demand for housing makes sense now.

Edward L. Glaeser and Joseph Gyourko

These are two distinct problems that require two different solutions — neither of which involves subsidized lending...The first problem, the shortage of housing for the poor, is best solved by providing more housing vouchers... [The second problem], the fact that homes in San Francisco and New York [and other coastal areas] remain extremely expensive by historical standards. Prices are far above construction costs because robust housing demand, fueled by rising economic productivity, has collided against barriers to supply, like minimum lot sizes and height limits...The only path towards widespread affordability is to build more, which requires reducing NIMBYist [Not In My Back Yard] regulations. Localities tend to put their own interests ahead of the nation’s interest by restricting building in order to keep prices up and reduce congestion. The federal government should increase its efforts to counter this tendency.