Real Estate Market

Government failed housing, but continues heavy housing subsidies

(4/8/2011) ERATE Exclusive - Sparking an economic bust that could have been avoided, the federal government bungled its responsibility to the housing sector.

That doesn't mean the Feds abandoned housing. Its an economic cornerstone generating premium fuel to helps drive consumer spending and economic growth.

After Washington, D.C. left the real estate market in shambles, it continued to spend substantially more on housing than energy, transportation and nonprofit sectors combined, according to a new study, "Subsidies to Housing Dwarf Those to Other Sectors", by Pew Charitable Trust's Subsidyscope project.

Call it bureaucratic schizophrenia.

There's plenty of blame to go around, but from the Harvard University Joint Center for Housing Studies' report, "Understanding The Boom And Bust In Nonprime Mortgage Lending," to the government's own "Financial Crisis Inquiry Report," by the Financial Crisis Inquiry Commission (FCIC) (an agency created by Congress to examine the causes behind the worst economic recession since the Great Depression), a few things are clear.

Like a deer caught in the headlights of disaster, legislators were blindsided by their own ignorance and acted too slowly.

Federal regulators, hoodwinked by the lack of transparency in financial markets, rolled over and played dead.

Both the legislative and executive branches of government bowed and scraped to a pro-business political environment that allowed risky business to flourish.

Even after housing crashed, taking the economy down with it, government mismanagement grew. Relief efforts failed under the much-too-little and way-too-late doctrine, numerous studies reveal.

And now, legislators, pundits, lobbyists and others, unable to give the nation a budget, are also wrangling over Mortgage Reform and Anti-Predatory Lending Act provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act which threaten both old and new federal efforts to promote homeownership.

Part of that debate stems from the fact that the federal government spend so much on housing, about $244 billion for grants and tax breaks in the fiscal year 2009, or roughly $2,085 per household, according to Pew.

Compare that to the per household average of $212 for the energy sector, $400 for transportation and $429 to nonprofits.

The housing subsidy figures don't even include cost estimates for federally backed housing loans and guarantee programs, nor the billions in substantial liabilities the government assumed when it took over Fannie Mae and Freddie Mac. Those numbers are too uncertain, unfinished and likely underestimated, says Pew.

"Not surprisingly, housing subsidies are a key component of the federal debate on how to reduce the debt and the deficit," said Subsidyscope project manager, Lori Metcalf.

"With billions of dollars going to this sector, it is important that legislators have data to understand this spending," she added.

So long as they don't use the data to stick it to housing and stuff the budget with pork barrel provisions.

Seventy percent ($171 billion) of the total $244 billion went to programs that support homeownership. Twenty-four percent ($58 billion) went to rental housing programs and 6 percent went to programs that support both.

The Feds fund homeownership largely through the tax code, old and new, while rental housing is mostly supported through grants.

The largest tax subsidy for homeownership is the now-under-siege mortgage interest deduction, which totaled $79.4 billion in fiscal year 2009. The largest rental housing subsidy is the Section 8 voucher program, which cost $16.3 billion in 2009, Pew says.

Over the next several months, the Pew Studyscope project plans to release federal expenditures on additional sectors, including health care, agriculture and defense.

We already know who wins that war.

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