Solutions to the Affordability Crisis Will Not Come from Government

Americans can’t expect to vote themselves out of this.

In the midst of significant weakness in the job market, liquidity issues in money markets, and increased scrutiny of certain capital market bubbles, it has become apparent to all that an affordability crisis exists.

As the Everything Bubble temporarily recedes, it no longer distracts completely from the economic damage created by easy money and inflation. Spurred by manic money printing since 2008 – most notably following the subprime crisis and covid panic – prices have been on a tear as the dollar has been debased.

Home prices, as measured by Case-Shiller, are up by an annual rate of nearly 7% since their lows in early 2012.

The S&P 500 Index is up nearly 10x since its 2009 lows, with any material downturn supported by liquidity injections from a bubble-pumping Federal Reserve.

Medical care and health insurance premiums are up at a far faster rate than most categories, a disturbing sign for an increasingly obese and unhealthy population.

Even CPI, a government metric that claims to measure the overall price level in the US economy, indicates that nominal wages have barely kept up with this measure of price inflation, meaning real wage growth has been anemic for some time.

Americans are now preoccupied with speculation and gambling, with many going into debt in order to chase runaway capital market gains. As evidence, margin loan balances and household debt recently hit all-time highs at the same time as casino visitation.

A clearer picture of moral delinquency and economic stagnation – particularly among middle class wage earners – can hardly be imagined, but this truth has been overshadowed for some time by the persistent speculative mania in asset markets, encouraged by successive administrations and a supine central bank.

With a little perceptive ability, one can see the cause-effect relationships in place. Government interference in the economy – possibly after a short-term artificial increase in activity – leads to distortions of an inflationary nature. These distortions ultimately reach a level such that political action “must” be taken. The political action leads to still larger distortion, which repeats the intervention-distortion cycle in the pattern of a step function, such that cumulative government involvement in the economy always increases in discrete bursts, leading to near-total entrenchment and the gradual eclipse of free market functions.

Grabbing the Wrong End of the Stick

H.L. Mencken said the common people know what they want and deserve to get it, good and hard. In that vein, commentators are now vigorously opining on what government “must” do to solve the affordability crisis.

One suggestion comes from the American Enterprise Institute. It takes the position that a “Marshall Plan” is required to make homes more affordable again and put the American Dream back on track. “Bold, visionary action is required” or something along those lines. It’s the sort of slop the political class loves.

Chubby nitwit Bill Pulte, Trump’s Federal Housing Administration Director, has suggested a 50-year mortgage to improve the housing market. The obvious drawbacks of this idea have been rightly pointed out, so I won’t repeat them. But the erroneous underlying premise should be apparent – government imposition under the guise of innovation can never equal the free market when it comes to creating true prosperity.

In a more under-the-radar attempt directed at housing, Pulte is also proposing “portable” mortgages. Initially confused with assumability – the feature of keeping the loan and collateral in place while changing the borrower – portability entails keeping the loan and borrower in place while changing the collateral. In other words, it allows homeowners to transfer their mortgages to a new home they purchase. This type of bureaucratic fudging has been ignored by markets thus far because it undercuts one of the primary tenets of lending – the connection of a loan to the quality of its underlying collateral.

Like the 50-year mortgage, portability is not an attempt at improving home affordability, but of increasing home sales volume, thus putting upward pressure on prices.

Another cynical ploy the current administration intends is sending checks to those under a certain income threshold. And yet, the money required must be printed or borrowed, thus aggravating the inflationary dynamic already in place. Worse, it makes people beholden to the government for yet another handout, chipping away further at their waning independence.

Intent to Withdraw

Ironically, the Trump team has recently pulled back tariffs on coffee, bananas, and other foods in a bid to combat higher prices caused by those tariffs. Here the administration has stumbled upon an actual solution to the affordability crisis – undoing all the nonsense that has been done previously under the guise of economic stimulus.

Removal of regulations in the housing industry, for example, would immediately cut construction costs, directly reducing a potential buyer’s cost basis, all else equal. These eliminations could begin at the federal level, with state and local to follow.

Additionally, winding down Fannie Mae and Freddie Mac – beginning with the cessation of any new mortgage guarantees, MBS issuance, and related federal backing of home purchases – would allow housing to become a true market again rather than a government-dominated racket with the taxpayer as the ultimate bag holder.

Broadly, a massive reduction in – moving towards elimination of – the welfare-warfare state would improve affordability of everything by eliminating the need for excessive government borrowing, taxation, and money printing. Thus, the US dollar would cease its endless debasement.

Artificially low interest rates – intimately tied to monetary inflation and currency debasement – would end if the central bank stepped aside and let the markets decide what to lend, to whom, how much, and at what rate of interest.

Despite the cause-and-effect clarity of the preceding suggestions, the odds of even one of them occurring is near zero. The political class and its network of savvy rent-seekers simply benefit too much from the status quo. Americans can’t expect to vote themselves out of this.

Real solutions lie at the individual, family, community, and even state levels that effectively bypass federal authority.

Understanding, for example, the negative impact that monetary inflation has on personal integrity is the first step in combating that impact by pursuing values higher than – and contrary to – those imbued by the state.

Increasing one’s productive skill set and marketability over time would mean that earning money becomes a function of technical acumen rather than rent-seeking ability.

Exiting the public school system in favor of alternative options – like homeschooling – would ensure children experience a naturally fulfilling and productive childhood, and not be set back by years of nonsense and propaganda.

Eschewing vapid indulgences and avoiding personal debt would not only remove the necessity for handouts from government, or any third party, but would ensure a healthy contempt for them.

Viewing politics clearly – as an exercise in the attainment of power through the use of colorful but empty language – would create a sense of urgency about sidestepping any polity that acts by force, and gravitating towards exclusively voluntary relationships.

These efforts are subtle but may be the only practical escape from an authority that manifestly despises those it rules over.