The Ignorant Investor

I haven't seen much mention on liberal blogs about the Obama administration's newly floated plan to wind down Fannie and Freddie's role in the home mortgage market and push for an end to the home mortgage interest tax deduction. I've benefited from both, but I think it makes sense for the government to stop subsidizing mortgages.

Freddie and Fannie expand the amount of credit in the housing market. Expanding credit leads to higher home prices as buyers are able to throw more money at existing housing stock. This home seller richer, but it also makes homes more expensive for home buyers and for renters. If you want low and middle income people to own their homes, shouldn't government policy be targeted towards making home prices lower rather than making consumers increase the money they owe to a bank every month? Higher debt levels make workers more susceptible to economic shocks in an era when job disruptions and unexpected bills are common. If anything, we should have policies that support higher savings and lower debt levels, not the other way around.

Housing is a necessity, and while we should expect home prices to go up over time, there is a social cost to making the cost of housing higher rather than lower.