Lok Sang Ho

The Housing Blame Game, Redux

Artificially boosting home ownership was also the culprit behind the dreadful reversal of the housing market in Hong Kong in 1998. The administration blames it on the Asian Financial Crisis, but as I have demonstrated in several published papers it was largely a result of a policy to sell public housing at deeply discounted prices to sitting tenants, which diverted their home purchasing activity from the private market and thus severed the housing ladder, and the Tung Administration's policy to boost residential construction at 85000 units a year, which caused a glut.

Why Bailouts Are Not the Answer

It is certainly correct that Americans need to keep spending within their means. But the immediate concern must be to save the jobs of Americans and the homes of those who have been working hard and paying their mortgages honestly. Without jobs and incomes, where can savings come from?

Proposed Homeowner Bailout Plans are Loaded With Problems

I have been proposing that, instead of buying soured mortgages, the US Government, with Fed backing, make a buy-back offer to owners of existing homes at a "fair price", calculated as the initial purchase price paid by the owner plus or minus a percentage increase or decrease as reflected by the local or national housing price index, as of some cut-off date. I proposed that the offer be made to existing homeowners of homes below the national median price. This effectively sets a floor to one half of the country's home prices. As a result of this guarantee, home purchases offers upside potential without downside risk. This is the surest way to stabilize the financial market, since slipping home prices increase defaults and undermine the balance sheets of financial institutions.

The government can hold on to these real assets until market conditions improve and then it can sell them at a profit. Thus there will be little cost to taxpayers.

This is the surest way to stop the vicious fear-fear spiral. One other attractive feature of the plan is that real prices can still adjust as inflation reduces the real price of homes. Finally, the home prices today are actually in line with per capita GDP trends and therefore should hold under normal circumstances.