Fifty Years Of Government Intervention Fails To Boost Home Ownership

Despite decades of federal intervention in the housing market, home ownership rates are virtually the same today as they were in 1968, according to an brief released by the Heritage Foundation on Monday.

According to the report, “the rate of U.S. homeownership has remained nearly constant over the past 50 years as government intervention has steadily increased, but the level of residential mortgage debt has increased nearly six fold.” Such policies created market distortions, “leading to artificially higher home prices and lower interest rates.”

The pace of government intervention was especially frenetic in the 1990s, the report says, such that, “from 1990 to 2003, Fannie [Mae] and Freddie [Mac] went from holding 5 percent of the nation’s mortgages ($136 billion) to more than 20 percent ($1.6 trillion),” all with implicit government backing. 

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Prior to 1968, “government-backed mortgages never accounted for more than 6 percent of the market in any given year.” However, “the homeownership rate was 64 percent in 1968, virtually identical to what it is now.”

Yet, while government intervention seems to have had little impact on home ownership, it did encourage risky lending practices, leading to the creation of systemic risk in the housing and financial markets, with familiar consequences.

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Under normal market conditions, investors take calculated risks based on expectations of future returns. “Shifting these financial risks onto taxpayers,” the report claims. “Is what causes systemic risk.” Because the government was willing to assume such risks, “investors enjoyed the safety of U.S. Treasury securities with rates of return that were greater than those available on Treasuries.”

Moreover, the report also claims that investors in Fannie and Freddie—those who purchased their debt and mortgage-backed securities—reaped the vast majority of benefits from policies intended to increase home ownership, with homeowners paying, “at most, 0.50 percent less in interest rates than if there had been no subsidy.”

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