Ed Glaeser partially blames government for the foreclosure crisis

From Harvard economics professor Edward Glaeser:

FEDERAL POLICIES bear some of the blame for the housing bust because they encourage leveraged bets on housing. Yet instead of reconsidering the public incentives that encourage real estate gambling, the federal government seems ready to double down, with another $35 billion in Treasury support for state agencies that subsidize borrowing, and the reauthorization of an $8,000 home buyer’s tax credit. The ship of state would do better to turn around and reduce borrowing subsidies, by lowering the million-dollar cap on the home mortgage interest deduction. ...

Encouraging spending on housing induces people to buy larger and larger homes, which use more energy and create more carbon emissions. The threat of global warming warrants policies that encourage smaller homes. ...

Subsidizing home buying does increase prices, but that just transfers money from poorer home buyers to richer homeowners. Public policy shouldn’t try to make cars or clothes more expensive, and it shouldn’t try to reduce housing affordability either. ...

Supporting homeownership is sometimes advocated as a means of encouraging asset accumulation, but it makes little sense to encourage investing in one particular asset class. A diversified portfolio is always safer than a leveraged bet on one particular home. ...

A tax credit for first-time home buyers would be reasonable if the credit was a substitute for policies that subsidized borrowing. If America wants to subsidize homeownership, then a flat tax credit makes more sense than a credit that scales up with the size of one’s mortgage. ...

Our policies should encourage people to live in housing they can afford, not to borrow as much as possible.