[ “When the Government Subsidizes something you end up with more of it, and people wonder why there was a housing bubble.....”
People have to live somewhere. I don’t consider a tax break on interest on home ownership when the alternative is rent much of a subsidy.
I don’t think we have too much housing. What we have is too little industry, so that some of the housing has been abandoned in areas in the most economic pain. Fix the unemployment, and you’ll see the housing fill up again. Right now you have families that are having to squat with Mom and Dad because of the economy. ]
I disagree, when the government started subsidizing houses (both through the tax break and freddie and fanny)it caused the price of housing to rise. This created a false bubble where housing costs in some places twice as much as it should if the regular market forces were left alone.
No, if you look back at the depressions and panics of the 1800's, you'll see that they were often associated with real estate. And that was long before Freddie and Fanny. How many of those were really real estate bubbles that affected the economy vs how many was a economic downturn affecting the real estate market is anybody's guess. But I think for the most part, the real estate market responds to changes in the economy, and not vice versa.
Real estate can be subject to speculation just like tulips were. And clearly that has occurred in California and parts of Florida. When you have people buying houses just to flip them under the greater fool theory, that's clearly speculation. But that can happen whether you have an interest rate subsidy or not. A subsidy doesn't cause speculation. Speculations are caused by market psychology.
In most of the market, people don't demand more than the one house they intend to live in. The interest tax break may help them afford a nicer house, but I would submit most of the increase in price is because the houses are nicer not because a government subsidy is creating excess demand. The interest rate break makes the entry into home ownership more affordable, it shifts the substitution between rental and ownership towards ownership, and it may increase total demand a little, but it doesn't cause speculation.