The 70’s again?
Perhaps the iconic example of an ineffective US economic policy might be President Gerald Ford’s program to combat double digit inflation in the 1970’s. Ford’s plan, called “Whip Inflation Now”, was to ask Americans to take voluntary actions to reduce consumption such as drive and eat less. Alan Greenspan later described the idea as “unbelievable stupidity”. No, it didn’t work at all.
Well, grab your WIN buttons because between inflation, new Cold War fears, high oil prices, Dua Lipa’s music[1], and more ineffective policies from the White House[2], it is feeling a lot like the 1970’s again. If you’re lucky enough to be one my younger readers who doesn’t remember the 70’s, imagine a time without smart phones, crypto money, and the Stranger Things[3]kids (or streaming anything), but still with high inflation, evil Russians, essential supply shortages (especially oil), reckless[4]and/or feckless[5]Presidents, and where the most famous kids on TV were the Brady Bunch.
Can the President move the economy?
Regardless of any button he tells you to wear, a lot of people think that the President is powerless to move the economy in any direction. “The President doesn’t control the economy”, they will tell you, “Presidents just get blamed when things go badly and don’t get credit when things are good”. In other words, those people believe that our current economic woes and the President’s dismal approval ratings are not Joe Biden’s fault[6]. He’s just a victim of bad luck[7]. Even if that is correct, Presidents do have enormous power in how they respond to whatever “luck” throws at them. COVID-19, Afghanistan, inflation, global warming, voting issues, immigration, culture wars, and housing issues were all problems Biden inherited. So, it is worth considering whether the President’s policies made those problems better, worse, or failed to move the needle.[8]
Housing supply issues
Since this is supposed to be a mortgage industry blog and not just rank-punditry, let’s focus on US housing policy for moment. I don’t think it takes an economist to tell you that housing price appreciation at over 15% annually over the past two years along with rising interest rates is making housing dramatically less affordable for home buyers. Meanwhile, analysts have been talking for well over a year about a severe housing supply shortage as the primary reason for the recent price inflation in housing. So, what’s the President doing about that bit of “bad luck”?
US housing policy?
The Federal government has multiple agencies with housing and housing finance responsibilities including HUD, FHFA and the GSEs (under government conservatorship for over a decade), banking regulators and the Fed, along with consumer regulators like the CFPB and FTC who all work (but not necessarily together) to implement the President’s policies and to enforce the laws of Congress. Despite all that government attention, current US housing policy is entirely elusive to me beyond (i) preventing foreclosures, and (ii) the desire to use housing to enhance wealth creation for all Americans in a non-discriminatory and equitable manner. Right now, foreclosures aren’t happening (which, ironically, is bad for increasing housing supply) and over the past 50 years neither enforcement efforts nor any policy proposals have moved the fairness needle. Sadly, with the cost of housing (and everything else) rising faster than income growth, we are no doubt backsliding further on the racial housing gap as more first-time homebuyers are priced out.
Speaking of ineffective policies
Yet, the Biden Administration recently offered its plan to address housing inflation by boosting supply. Unfortunately, with the exception of a few housing regulators (who Biden can legally fire at will[9]), no one seems genuinely excited about this plan.[10]Ginnie Mae’s new President, Alanna McCargo, however offered this to the MBA’s Secondary Conference attendees on May 17, 2022,
“The President’s talking about Ginnie Mae and the housing supply and this has not ever happened before. We haven’t really had, in my view and in my 25-plus years of being in this business, this kind of level of focus on housing and the housing ecosystem and all the moving parts from the White House level and the Cabinet secretary that I’ve seen with this one.”
Meanwhile, newly confirmed FHFA Director Sandra Thompson indirectly offered, “we’re always looking for ways to be helpful because this issue is nationwide, it’s in almost every single part of our country.” I don’t know about you, but the responses of those two regulators seemed to me to be metaphorically saying, ”Sure, Jan”[11] to the President about this plan to increase housing supply.
That housing supply plan
After over 25 years of inattention to the housing ecosystem (per Ms. McCargo’s comments) Biden’s plan aims to address the housing supply problem by enticing local governments to relax NIMBY regulations in return for more federal dollars for housing diversity and density[12]and by encouraging Ginnie Mae and FHFA to consider permitting more manufactured housing finance from the GSE’s. In its tepid support of manufactured housing, however, the Biden plan offered that HUD should update its regulations, “to allow manufacturers to modernize and expand their production lines, and helping manufacturers respond to supply chain issues”. My metaphorical reaction to that is like, wow, that’s “a bold strategy, Cotton, let’s see if it pays off”.
Matt Yglesias
Other housing observers were less sarcastic in their assessment of the plan than me, but one has to wonder why. Slow Boring writer Matt Yglesias, a left leaning libertarian anti-NIMBY and pro-immigration zealot[13], gave Biden’s plan an (Elizabeth) Warrenesque flavor with the sub-headline, “Joe Biden has a plan to increase supply”[14]. Yglesias gently chastised the Biden administration for prolonging Donald Trump’s protectionist policies that raise prices for things like lumber and appliances and noted that the plan also missed a chance to say anything about immigration (to alleviate construction industry labor shortages). Yglesias, who thinks there should be One Billion Americans[15], also thinks the government could enable a lot more housing with manufactured housing. In fact, Yglesias claims, “the manufactured housing sector was deliberately kneecapped by regulators in the 1970s in order to protect the business interests of single-family homebuilders.”
Revisiting Housing Policy
“Kneecapped in the 1970s” sounds like a movie or song title, but here we are 50 years later still talking about the 1970s and a housing supply option that is still shunned and vastly under utilized. You know what else is from the 1970s? The GSE dominated secondary market as we know it today…, and RESPA. Over a dozen years after the subprime meltdown and GSE conservatorship, it’s well past time for policy makers to take another look at the effectiveness of those things in light of whatever the housing policy objectives are or should be.
[1] Or is it Doja Cat? I get them confused.
[2] I’ll get to this point later.
[3] Stranger Things, the Netflix Sci-Fi show set in the early 80’s about a bunch of kids dealing with a portal to some kind of netherworld, just “dropped” its new (final?) season on May 27, following a precipitous drop in Netflix’s stock price. Apparently, each of these Stranger Things episodes cost like $30 million, but so far, it seems all that money wasn’t spent on writers, special effects, or anything other than predictable trite storylines and dialogue. I hope it gets better.
[4] I don’t mean to suggest that Nixon and Trump were similarly careless about the consequence of their actions, but reckless rhymes nicely with feckless.
[5] I don’t mean to suggest that Carter, Ford and Biden were similarly ineffective, but also feckless rhymes nicely with reckless.
[6] While the Atlantic article I linked to acknowledges that “Presidents aren’t powerless, and it’s unhelpful to pretend so”, it goes on to explain,“Biden inherited an economy he didn’t build, sundered by a pandemic he didn’t start. He oversaw the distribution of a vaccine he didn’t develop, and his inoculation campaign ran headfirst into vaccine resistance he couldn’t control. He was slammed with a viral mutation he didn’t ask for, then got punished by an international supply-chain mess, which slammed into domestic logistics problems overseen by private-sector transportation companies he can’t command, compounded by trucker shortages and port inefficiencies he couldn’t go back in time to fix.”
[7] Here’s what Red Foreman, the father on “That 70’s Show” had to say about his son blaming stuff on bad luck, “You don’t have bad luck, son. You’re a dumbass”.
[8] People will differ on whether they think Biden’s policies have done a good job in responding to these inherited issues, but my assessment is that at best he has been ineffective. In fact, he seems to have missed some easy wins and some of his policies have made problems (like inflation) significantly worse.
[9]The President can fire the FHFA Director and anyone at HUD at his discretion, so if she doesn’t do his bidding, he can get someone else who will.
[10] A few top trade group representatives gave me collective eye rolls when asked about it and the housing press seems similarly nonplussed. See, e.g., Biden’s plan to fix housing supply depends on Congress – HousingWire.
[11]This, by the way is not a reference for real Brady Bunch fans from the 70’s. For me the correct reference is “Marcia, Marcia, Marcia!” I have no idea who these fake Brady Bunch actors and actresses are, but apparently this now iconic meme from a sequel I never saw is what the kids today think of when I mention the Brady Bunch. Sad!
[12] Funds for that program will be distributed by Pete Buttigieg’s Department of Transportation. Unfortunately, any incentive intended with these funds will be muted by the growing coffers of state and local governments thanks to federal COVID relief funding and, ironically, growing real estate tax revenues from assessment increases due to rising real estate value.
[13]This is my characterization of Matt, not his. I enjoy reading Yglesias’ posts because I think he approaches problems with a rational and practical approach, yet often (but not always) arrives at a different conclusion from my own. That makes me respect his thinking and want to engage with his ideas. Much better than the typical “outrage peddling” you get from many writers on the left and the right appealing to empathy and tribalism rather than reason and effectiveness.
[14]Speaking of Senator Warren, she’s “got a plan” to deal with inflation called “Price Gouging Prevention Act of 2022” that Gordon Gecko wouldn’t like. Will someone please explain to Senator Warren that when people ask for a raise that it is not because we are greedy. It is because we have to pay $5.00 gallon for gas now and can’t afford to commute!
[15] The US Census Bureau says as of the end of 2021 we’re almost 1/3 of the way there!