Monday, July 8, 2019

Squeezing "Unqualified" Borrowers

The latest post in my Mercatus bridge series.

More on how recognizing the key importance of rent as the measure of affordability - for both owners and renters - helps clarify the issue.  Tight lending is making housing less affordable for renters.

Considering this set of circumstances, the idea that housing affordability is getting worse because prices are high and that the solution is even higher interest rates or tighter credit access is a disastrous misreading. It will lead to a vicious cycle of segregation between households that can qualify under today’s standards (and who then can buy ample units at favorable terms) and households that cannot qualify (and who must keep economizing while a large portion of their wages is transferred as rent to the ownership class).

There are two options. Re-opening credit markets to entry-level buyers will return the market to a more equitable equilibrium. Maintaining the market as it is will continue down the path of settling at a new equilibrium where certain households live in smaller, less adequate units, either because of size, amenities, or location.
Please read the whole thing.

Here is the link to the full series.

2 comments:

  1. Considering this set of circumstances, the idea that housing affordability is getting worse because prices are high and that the solution is even higher interest rates or tighter credit access is a disastrous misreading. It will lead to a vicious cycle of segregation between households that can qualify under today’s standards (and who then can buy ample units at favorable terms) and households that cannot qualify (and who must keep economizing while a large portion of their wages is transferred as rent to the ownership class).--KE

    That is quite a statement. Coupling the above commentary with the reality that dense housing construction is a criminal act on the West Coast... Well, it puts a spin on things.

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