On Fannie Mae, portfolio diversification, and what it would take to get Toyota to build American houses
America's housing policy goal, such as it may be inferred, has long been expressed as something along the lines of "get as many households into homeownership as possible". The sentiment is ultimately Jeffersonian in nature: "[I]t is not too soon to provide by every possible means that as few as possible shall be without a little portion of land. The small landholders are the most precious part of a state", he wrote to James Madison in 1785.
■ And so we get the home mortgage interest deduction from income taxes, the homestead exemption from property taxes, and the support of quasi-agencies like Fannie Mae and Freddie Mac. All are major policies driven towards the objective of a house for (almost) every household.
■ But America's chronic problem when it comes to housing is that we treat housing as a financial investment. This is suboptimal behavior for a number of reasons, not least of which is that it probably chokes out investments in much more productive assets. But, fundamentally, we need to acknowledge that if an asset is both disproportionately important to household wealth and extremely hard to subdivide or sell in pieces until a desired future date, then the people owning such an asset will be heavily incentivized to favor scarcity.
■ It doesn't have to emerge from a malicious place to have pernicious consequences. NIMBYism is everywhere, in no small part because people are easily terrified by the thought that the value of their most significant investment could be threatened by the arrival of an abundant competitive supply. Thus homeowners almost chronically oppose any moves that would expand the housing supply: Rural areas decry "urban sprawl", suburbanites oppose increased densities, and urban-dwellers fight developments that would "tax the infrastructure".
■ As no more than a thought experiment, consider this question: How different might things look if the implicit policy preference were not "as many households into homeownership as possible", but rather "at least two domiciles for every household"? In other words, what if the policy were one of an explicit preference for housing super-abundance, rather than one placing maximum value on a single home as a family's largest asset?
■ On the surface, even the concept of "two domiciles per household" sounds a little crazy. But then consider the variety of ways in which this is already, to some extent, a choice some families already make. Some have vacation homes. Some take up time-shares. Some are "snowbirds" who move south for the winter, then back north in the summer. There are families with downtown "crash pads" and full-sized homes in the suburbs. There are "granny flats" and kids living in refurbished basements and college students who are still dependents but live on or near campus for nine months out of the year. And there are so very many campers, trailers, and RVs.
■ A policy expressly intended to prioritize housing super-abundance would have implications for taxation, regulation, and innovation alike. And what a second domicile would look like could vary for every family -- plenty of households have "feet" in two places at once, whether it's because an adult is working on a job remotely, someone in the family is in school far from "home", or simply because there's a lot of time spent visiting Grandma or chasing a traveling athletic team.
■ If we were to prioritize super-abundant housing, then we might see much more incentive for innovation, particularly in the "missing middle" of housing. That, in turn, might attract substantial new producers to the equation. Few Americans realize this, but in Japan, Toyota builds houses. The greater the innovation brought to the supply side of the equation, the better off we would be. More housing overall means more people, overall, in housing.