Professor Lawrence White Testifies before U.S. House of Representatives on Housing Finance Reform
For overall housing policy, the most important policy measures would be cutbacks in the overall levels of subsidy for housing and for mortgage borrowing.
Professor White reviewed government policies that encourage and subsidize the construction and consumption of housing, and discussed their consequences. “A basic tenet of economics is that if something is reduced in price, people generally will buy more of it,” he noted. “As housing has been reduced in price, households have often bought “more house” … In turn this “more house” (including more rental housing) has meant that more of the U.S. economy’s resources have been devoted to housing and less to other investments that would have been more productive – such as business investments in plant, equipment and inventories; government investments in schools, roads, bridges, hospitals, airports, etc.; and individuals’ investments in more and better education and training. One set of studies from approximately 25 years ago estimated that the U.S. housing stock was 30 percent larger than it would otherwise have been in the absence of widespread subsidies and that U.S. GDP was 10 percent smaller than it would have been. More recent studies have generally been supportive of these earlier findings.” He also noted that most subsidies associated with home ownership, particularly mortgage interest and local property tax deductions, benefit upper-income households.
Professor White outlined possible steps to reduce government involvement in housing finance. “For overall housing policy, the most important policy measures would be cutbacks in the overall levels of subsidy for housing and for mortgage borrowing,” he asserted. “A good place to start would be to phase out the income tax deduction for mortgage interest (and along the way, convert it into a tax credit instead of a tax deduction), which would also have the benefit of improving the budgetary position of the federal government. Phasing out the GSEs and replacing them with a housing system that is largely privately supported would also be important.”
Professor White served as a Board Member of the Federal Home Loan Bank Board during 1986-1989 and as part of his governmental responsibilities was one of three Board Members of Freddie Mac.
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