Arnold proposes that Freddie and Fannie be confined to a narrow purpose - subsidizing 30-year fixed-rate mortgages for first-time home buyers. That would be an improvement over the status quo, but it's still unclear to me what the market failure is, unless one shows that home ownership is a public good and, therefore, that first-time home buyers should be subsidized. (In full disclosure, I benefited from mortgage subsidies for a good fraction of my adult life.) Fixed-rate mortgages have interest rate and default risk, the former due to options implicit in mortgage contracts, i.e. zero or low prepayment costs, the latter due to the usual risks of default in consumer lending - job losses, moral hazard, and others. The market could cover these risks by building their costs into interest rates. Mortgages then would be more expensive and less attractive to potential borrowers, leaving some people out of the market for home ownership. But that is not a market failure, it's merely pricing in the full cost of lending. Again, unless we can demonstrate that home ownership is a public good, the government ought not to subsidize it. This comment is agnostic on the matter and merely draws a distinction between possible public benefits and market risks.
If subsidizing homeownership is desirable, then the question is whether the Fannie / Freddie approach is the best way to do so. An alternative that might be simpler and more efficient could be to spend an equivalent amount of public treasure on subsidizing down payments.
It's the US version of the welfare programs in other European states. It is also very challenging to foreclose on anyone who is mentally competent and does not want to lose the house. However, a lot of the people who wind up in foreclosure are too mentally and/or morally incompetent to handle the process.
Variable rate loans are less risky: high interest rates are often the result of inflation, so normally it is ok to pass interest rate change to the borrower, that normally receive higher wage if interest rates are high.
My thoughts exactly. Perhaps they don't exist in freer markets because they're just not a good idea.
Clearly lending to buy houses is a huge market. As Arnold and others have mentioned, there are a zillion other loan structures with different risk tradeoffs. For example, when we bought our first house, we took out a 7/23 loan: it had a fixed rate for seven years, then a rate adjustment, then 23 years at the new rate. I was anxious about the step up. Our agent, quite correctly, reassured me I wouldn't be living in that starter house seven years later so it didn't matter. He was right, we only lasted six.
While I know people still living in their first home, 30 years down the line, that's pretty rare. What I don't know is anyone still paying their original 30-year mortgage at year 29. Everyone refinances at some point.
"There is no need for a government enterprise to subsidize 15-year mortgages, adjustable-rate mortgages, second mortgages, home equity loans, or mortgage refinances."
I recently listened to an old Freakonomics podcast where James Choi of Yale argued everyone should get variable rate mortgages. He says on average they'd pay less. Maybe, but that ignores how longer fixed rate mortgages are more heavily subsidized so any premium paid is rather small compared to the benefits. As you say, it's unlikely a 30-year fixed rate mortgage would exist without government backing/subsidies. Certainly not at an attractive rate.
I suggest that you are wrong about subsidizing 15-year and variable mortgages for reasons akin to Choi's point. While maybe the typical person taking out a 15-year mortgages doesn't need a subsidy, we don't want to tilt the incentives towards them getting a 30. I'd argue it's better for everyone if they get the 15. The argument for variable is similar though maybe a little weaker. Either way, the risk subsidy provided to F&F to make those loans is smaller for 15 and negligible for variable. Allowing them to hold variable mortgages might even strengthen their portfolio.
I think that most people are very naive about mortgage finance. They can be easily fooled. And variable-rate loans make it easy to fool consumers. It's really hard to do consumer protection in that context, so encouraging the 30-year fixed rate is actually friendly to the naive consumer.
Absolutely. That's a very different argument than in your daily post but sure. Just a little unexpected to hear that from you.
I can't remember the source or context but I recently heard a similar argument that was surprisingly compelling regarding why the government should do more to protect people from some common behavioral weakness(es) even though it would restrict the freedom of the minority of us who are able to handle such things without harming ourselves.
The assertion that “But with the other hand of government (primarily local government) restricting supply…” seems a bit hard to swallow.
The central government’s tree selling business controls 193 million acres of land, roughly the size of Texas, and located in 44 states, Puerto Rico, and the Virgin Islands, covering about 9% of the total land area in the United States.
The central government’s landlord for the western United Statescontrols 247.3 million acres , roughly an eighth of the United States’ total acreage. True, rents are cheap, at about $2 to $3 dollars an acre, with 80% off discounts for solar farms and the like, but the homesteading program was ended in the 70s and now all that land is closed off to residential construction. As is the total of 615,311,596 acres (27.1% of the total land area of the United States) controlled by the central government, with:
National Park Service: 84,000,000 acres
United States Fish and Wildlife Service: 57,000,000 acres
Department of Defense: 26,000,000 acres
Other federal agencies: 10,000,000 acres
On top of that our financially strapped central government sees fit to remove 37,982,910 acres from productive tax-generating uses in the form of some 221,256 Tax Code created conservation easements. https://www.conservationeasement.us/
But sure, go ahead and keep telling yourself that all the problems in the world are the fault of the little people having whatever autonomy they still might enjoy and not having a heavy enough boot on their throats. Maybe when the boomers finally die out we will be able to go back to a humane, pro-growth agenda instead of wallowing in this pathetic neo-pagan hippie nature worship inspired anti-growth central government public policy.
I mean overall could America be more like China? Sure, I imagine it can be. I imagine it will be. I’m not sure why that should be a goal particularly especially given that America’s achievements with regard to land and water conservation are typically among its proudest. Among ordinary folk anyway. Admittedly, the younger generations are less likely to care about these things given that they are chiefly interested in the reflection of themselves on their screens. But there is time for them to yet be glad of what has been done in this way. Because what is done, in a real sense, cannot be undone. Because it never is undone. It goes only one way.
To me a good piece of legislation with real world results such as that which established our various national parks, for instance is far more important than any abstraction.
Not sure of the through line between VAT tax and hostility to conservation.
The interior department – though not in charge of all federal land, DOD and Ag being in there – does a lot with a little. It’s one of our more successful agencies despite being buffeted, occasionally abused, by the vagaries of the culture. To me that cultural quality is obviously at a low ebb. Someone who is hostile to federal land ownership and conservation, obviously takes the opposite view - they look around at Americans today and find them wiser and better than their forebears, who saw the frontier closing, realized there wouldn’t be any more of it, realized that overgrazing and timber harvesting were leaving it less than it had been, and creating some real practical problems around erosion, just for one; they felt some awe, some uniqueness to the place, that perhaps called forth in them a desire to do something New in this New World.
So as I say, maybe they were stupid and we are smart.
I obviously don’t agree with that but it’s certainly a valid and indeed popularity-making thing to argue, being much in the spirit of current ideology and the triumph of the extremes, at both ends.
Of course you can’t believe it and be a conservative, but who needs more conservatives, when they’re so damned ineffectual?
Hostility to conservation has been a solid GOP plank for a long time - what, since not long after the Nixon administration’s oversaw the first Earth Day? Since about the time the GOO stopped worrying and learned to love immigration.
Hmmm, do you think there might be a connection there lol.
I’ve noticed reformers always set their sites on things that are pretty good. I guess this is human nature. Hard things are hard for a reason.
it’s like in American cities, they often want to beautify the same street over and over. The rest of the city is just too much to contemplate. Thus: this looks good, it looks better than anything else, so yeah let’s do it over.
Those whose incomes permit the taking of a deduction around their donation of an easement, may attract your ire if you want people to pay more taxes and you are certain there is absolutely no public interest in land use.
But of course many others do so without any such expectation or need, not being wealthy.
Still others are paid for the value of the easement.
Because all an easement is, is a property right. An interest in a property.
So to get rid of the concept - is extremely anti-private property rights, which is inherently statist.
Again, fine, but yours is the radical position.
As with any legal instrument a few cynical bad actors have tried to exploit it, much to the delight of the WaPo (not, I think we can at least agree, a conservative organ) which hates the concept of the environment as elitist, being rather out of touch will polling around open space. These represent such a tiny few that I think we can safely say this regime is more robust than just about anything else in our legal and tax system.
I make no claims whatsoever regarding whatever value should be attached to open space. Only that government designation of such space involves trade-offs that local governments are much better situated to evaluate. There are tens of millions of acres of state parks, state wildlife refuges, state forests, state conservation areas, etc. https://www.playgroundequipment.com/us-states-ranked-by-state-and-national-park-coverage/ and most local county and municipal governments make provision for open space as well. What harm would be done if the federal government's vast land holdings were transferred to the states and their usage reevaluated by the people most affected?
I make no claim that more taxes are needed either. Simply eliminating all of the federal land management agencies and transferring title to their holdings to the states would be a great alternative to a tax increase. I do object to using the federal tax code being used as a bludgeon to advance every establishment bright idea that comes down the pike. Tax codes should be about raising the revenue necessary to finance the government. Our sorry excuse of a federal tax code does anything but that. Scrap it and replace it with a flat across the board VAT with no exclusions.
I should add an interesting example that rather refutes the idea that ordinary people (as against politicians and ideologues) dislike conservation.
And kudos to Trump, because he did, if inadvertently*, something that has been held up for decades by Utah pols: he signed the Congressional bill designating a new Utah wilderness area (the most stringent designation). Actually one of the most significant pieces of permanent conservation in about 15 years, if you don't count Bears Ears which I don't suppose we can.
It's a chunk of the San Rafael Swell. I'm not familiar with it, but my understanding is this is how it went down: the Republicans made a little mistake. They said they would designate some wilderness only "if the locals wanted it".
Well, somebody called their bluff on that. The locals of one county did indeed sign off in it. And that is why their county, basically, is now a federal wilderness area.
*Of course, he undid protections for the Tongas and the Bears Ears, let's not kid ourselves. But whom to blame for the failures of conservation in recent years are the national environmental groups, who have fallen down on the job for woke reasons. Ronald Reagan hated wilderness, but was not such an ideologue that he didn't sign into law - in terms of number of bills - more wilderness areas than any other president (because of a process with a deadline, the RARE II process, that Carter put in motion). Clinton too did a lot of good things. Carter was a great president in this regard, but in general presidents will sign what is put before them.
It’s telling though, that you take a look at the tax code and zero in on an exercise of government authority that is widely popular. It reminds me of at the beginning of each legislative session in my state, Somebody who couldn’t really say why he’s doing what he’s doing, but he thinks that he’s a libertarian, takes a look at everything the government does, all the checks that are written all the poor incentives, all the waste - and zeros in on the aspect of state government, that is arguably the most popular thing it does: state parks. And this guy proposes that all the state parks be sold. Mind you this is a state that is expected to add another 20 million people in 10 years and where the state parks are so popular that much of the time you have to make a reservation well in advance just to be able to get in them.
I am certain that if the states were in charge of the federal lands, there would be a whole lot more grifter opportunities than the current welfare cows.
The people most affected like their grazing leases and they’re hunting leases. What you probably really mean are: people in urban areas. What you are discussing is an aspect of the relentless drive to devolve all political power into the hands of urbanites. Yes I am sure there are some property developers at the urban/wildland interface who would love to be handed some federal open space, To build houses that can then be subject to wildfires and people can blame I don’t know wolves or whatever. And pick up the tab for that.
And the welfare cows have this on their side – that there is no better use for a grassland – than grass... This is an indisputable fact of reality, please understand. Not politics, which is or should be always a second order thing.
Finally, you have obviously not undertaken to do a conservation easement yourself, or you would realize that the tax Iimplications are much overstated, especially in the media mind.
And as regards charitable, giving generally, and taxes: what I guess will be my monthly reminder, environmental giving amounts to one or 2% of the whole. And that includes zoos that includes dogs, that includes animal rescue. Do the math.
ETA: apologies for sloppiness, I am driving while dictating.
Why would you think that about conservation easements? Distinctly odd thing to say. Timber production and grazing are certainly often compatible with easements; Florida just placed thousands of acres of ag under conservation easement, for ag preservation as well as wildlife connectivity purposes.
I guess if we get to where we have the one industry, home building, your points about (helicoptering?) people into the national forests to live may make sense but then we may have other problems.
I am not sure I understand or how to respond to your comment. What I meant by a conservation easement is when someone gets a federal tax deduction for donating the right to develop acreage to a qualified land trust charity or the like.
A typical example is when a DC area federal employee retires and goes out to Virginia horse country and buys an estate. This is quite common among the tens of thousands of OIG staff many of whom are non-supervisory GS-15s who with their law enforcement officer pay (really, most OIG staff spend all day sitting at desks but are authorized to carry weapons for no particular reason and thus pull down the statutory maximum amount of pay under the general schedule, retire at age 55 and go out and build a mansion on a 40-50 acre horse pasture. They donate a conservation easement on about half the acreage and reap a huge tax deduction. Why our broke-a** federal government thinks this is a priority is just a mystery to me although there appear to be plenty of “state capacity” libertarians who sing the song that federal employees are woefully underpaid in relation to those in Singapore or somewhere and we could actually have a government that works if only we shoveled more money into bureaucrat salaries. But there are untold numbers of scams being worked with conservation easements elsewhere. For example donating building facade easements to historic trusts and the like: somebody stuck with an old building in a city that nobody in their right mind would ever want to open a business in (read: most of them) donates a “conservation easement” on the facade and gets a big tax break. Simply ridiculous.
Of course that pales in comparison to the hit to economic growth potential that has been dished out under the Antiquities Act under the last half dozen or so presidents who have been compensating for insecurity in their manhood by trying to outdo each other in the size of national monuments they declare. Richard Nixon, Ronald Reagan, and George H.W. Bush, the most manly of our recent presidents, were the exceptions, not using the Antiquities Act to block economic growth at all.
Under that Act, with the stroke of a pen, Carter unilaterally, with no specific legislative authority or approval from the residents of the affected states, declared 15 national monuments covering 55,800,000 acres were off limits to any sort of productive economic use. W. went marine precluding 582,578 square miles of ocean from any humanity-serving use. Obama, with perhaps more to compensate for, (https://www.hks.harvard.edu/publications/barack-obama-americas-first-gay-president ), tried to outdo him by imposing 29 national monuments, the most by any president, covering1.65 million acres. Trump, with a bit of his trademark swagger, tried to assert his manliness by making some small adjustments to a few of the more ridiculous monuments, but these were quickly reversed by Biden. But Trump couldn’t resist signing a land bill taking many more hundreds of thousands of acrea out of potential productive use. https://apnews.com/united-states-congress-27b092f5988441d1aa511cb95ede993e Biden, as mentioned, reversed Trump but is on pace to set a new record with the following declarations:
Avi Kwa Ame National Monument, Nevada: 300,000 acres
Castner Range National Monument, Texas: 214,000 acres
San Gabriel Mountains National Monument: expanded by 150,000 acres
Berryessa Snow Mountain National Monument, California (within commuting distance to the greater San Francisco metro area): expanded by 150,000 acres
New monument near the Grand Canyon, Arizona: about 1 million acres.
If and when he leaves office, I doubt that he will do so without at least doubling the acreage on which he has already precluded economic activity.
Moreover, all this locked up potential makes the USA even more tempting as the target of a hostile take-over. Which may or may not be a bad thing. Would the new despots be worse than the old?
Surprisingly, despite all this, if one can believe what one reads on the internet, more than half (52.3%) of residential mortgages generated in the US in 2022 were “conventional,” that is, they were loans that were not backed by a government mortgage loan guarantee program. (https://www.bankrate.com/mortgages/mortgage-statistics/#type ) Of course, some would argue that since deposits into the banks doing the lending generally are federally insured up to some limit, then government deposit insurance is the same thing as government mortgage backing. ( https://www.americanprogress.org/article/international-mortgage-finance-101/ )
Internationally, one gets the impression that there appear to be three basic approaches: bank deposit financing (a bank makes the loan and holds the mortgage and receives payments), bond financing , and securitization and sale in secondary markets. Denmark apparently offers 30-year fixed rate mortgages but does so using the bond model. (https://www.businessinsider.com/denmark-mortgage-rates-lock-in-effect-home-buying-selling-easier-2024-5 )
The United States seems to be the only country in the world in which the government backed mortgage-backed securitization (that is mortgages that wind up in the secondary market through agencies like Fannie Mae, Freddie Mac, and Ginnie Mae) is a dominant source of funding for housing finance. Apparently Canada has a single such agency to back home loans that has a dominant share and it also securitizes those loans but it doesn’t seem as if Canada actually has a separate program to back those secondary securities because all of the bundled and sold mortgages already have primary insurance, unlike in the US in which many of the government backed securities were composed of uninsured mortgages (? not sure I have this right). One wonders how much of US GDP is accounted for by these mortgage resale machinations and how much the differences in reported GDP per capita between the US and other developed countries is simply due to government sponsorship of the secondary market in mortgage securities? One also wonders why there don’t seem to be a lot of risk and incentive problems with programs like the VA home loan program that simply guarantee mortgages and don’t get involved in marketing securities, instead leaving that to Freddie and Fannie? (https://www.va.gov/housing-assistance/home-loans/loan-types/ ) One wonders what would happen if all the federal mortgage programs were simply consolidated into a super-VA that guaranteed loans that met standards and let the private market do securitization without government backing? Wouldn’t that be pretty much what Canada does? But why mess with an already financially maxed out federal government, and just turn mortgage programs over to the states?
USA is an outlier (big, rich, diverse, semi-nationalized healthcare, etc.) yet again.
Australia is a good comparable on this one (versus crowded Europe and weird 99-year leases in UK). Oz has home ownership in the same range as US, no 30-year fixed, interest rates floating. Oz banks don't blow up; thanks, in part, to their limited scope of activities and smart immigration powering everything. No GSEs in sight, aside from the banks themselves, so Fannie and Freddie are not needed!
Yet, Oz has the same over-investment in "over-priced" housing. Across rich economies, zoning and building regulations on the supply-side, tax policy and conspicuous consumption on the demand-side. Five-bedroom houses with no children, thanks to keeping up with the Jones's and a tax policy that supports envy (as usual).
I hate the 30 year mortgage. I get that its overnight elimination would impact prices enough to be politically unpalatable, but I wish we could slowly phase it out. Like offer 29 year mortgages next year, then 28 the year after that, etc.
Again - you are asserting that traditional, non-urban land uses are not economic activity.
We have a difference of values, yes, especially around the permanence of ill-advised changes around land use - and fragmentation - and about natural resources in the full, Rooseveltian meaning of that term - but it need not be more than that.
There can’t be anyone on the blog who knows more about conservation easements than I do, but anonymity is important to me. Environmentalists will be the first to get the axe, I assure you!
Great idea, gov't support for 30 yr, fixed rate mortgages. Very practical, and politically plausible. Those politicians opposed will be supporting rich housing speculators -- NOT the single home owning couples raising kids on middle incomes.
Would be interesting to see how Dems articulate their opposition to this.
I'd also like to see 20 yr & 15 yr mortgages, as well as a lifetime limit on mortgage interest deduction (2 * avg median income, so about $120,000 now as max interest deduction).
How about you privatize it and don't let customers refinance for free? In other economies, customers pay a large fee if interest rates fall and they refinance.
Why is there a public interest in favoring 30-year fixed rate mortgages over variable rate? Does than not in fact make monetary policy a bit less sector neural than it ought to be?
But if F/F/G purchases were valuable, would that not incentivize a growing market share for the non-tricky?
Still, point taken. It is really much more the role of prudential regulators than F/F/G to discourage bank from speculation too heavily on the yield curve.
If you say it enough times it must be true, right? Honestly, I don't have that answer. But whatever obstacle/disincentive it is, the more obvious concern is disruption.
Also, note that land use restrictions reduce supply and the end of fixed rate mortgages would likely reduce demand so they are indeed very different.
When you write, “our housing market” is dependent on them - I am not sure if you mean young homeowners are so dependent, or the home building industry.
Either way, I read it as subsidizing sprawl, which I realize was long ago shelved as a topic but unfortunately I’m not in a position to forget about it, where I live.
So maybe that sentence could use elaboration but this was an interesting piece.
Maybe in neighborhoods with aging homeowners, where the schools sometimes lose enrollment - a non-subsidy of new builds/sprawl would lead to more people moving in with their elders, inheriting their houses in advance.
This would be less wasteful, so not pleasing to an economist; but then again, AK often opines on the benefits of family being in close proximity.
Escalating homes prices haven't seemed to make it happen and concern for climate change hasn't seemed to make that crowd do it so I'm not expecting reducing home ownership subsidies would do it either but who knows? Sometimes these things just need the right timing.
Arnold proposes that Freddie and Fannie be confined to a narrow purpose - subsidizing 30-year fixed-rate mortgages for first-time home buyers. That would be an improvement over the status quo, but it's still unclear to me what the market failure is, unless one shows that home ownership is a public good and, therefore, that first-time home buyers should be subsidized. (In full disclosure, I benefited from mortgage subsidies for a good fraction of my adult life.) Fixed-rate mortgages have interest rate and default risk, the former due to options implicit in mortgage contracts, i.e. zero or low prepayment costs, the latter due to the usual risks of default in consumer lending - job losses, moral hazard, and others. The market could cover these risks by building their costs into interest rates. Mortgages then would be more expensive and less attractive to potential borrowers, leaving some people out of the market for home ownership. But that is not a market failure, it's merely pricing in the full cost of lending. Again, unless we can demonstrate that home ownership is a public good, the government ought not to subsidize it. This comment is agnostic on the matter and merely draws a distinction between possible public benefits and market risks.
If subsidizing homeownership is desirable, then the question is whether the Fannie / Freddie approach is the best way to do so. An alternative that might be simpler and more efficient could be to spend an equivalent amount of public treasure on subsidizing down payments.
but why as a matter of public policy should we want 30 year fixed rate mortgages? they are virtually non existent in other countries.
It's the US version of the welfare programs in other European states. It is also very challenging to foreclose on anyone who is mentally competent and does not want to lose the house. However, a lot of the people who wind up in foreclosure are too mentally and/or morally incompetent to handle the process.
Because we have decided it is good for people to own their home and 30-year mortgages make that more likely.
Variable rate loans are less risky: high interest rates are often the result of inflation, so normally it is ok to pass interest rate change to the borrower, that normally receive higher wage if interest rates are high.
My thoughts exactly. Perhaps they don't exist in freer markets because they're just not a good idea.
Clearly lending to buy houses is a huge market. As Arnold and others have mentioned, there are a zillion other loan structures with different risk tradeoffs. For example, when we bought our first house, we took out a 7/23 loan: it had a fixed rate for seven years, then a rate adjustment, then 23 years at the new rate. I was anxious about the step up. Our agent, quite correctly, reassured me I wouldn't be living in that starter house seven years later so it didn't matter. He was right, we only lasted six.
While I know people still living in their first home, 30 years down the line, that's pretty rare. What I don't know is anyone still paying their original 30-year mortgage at year 29. Everyone refinances at some point.
"There is no need for a government enterprise to subsidize 15-year mortgages, adjustable-rate mortgages, second mortgages, home equity loans, or mortgage refinances."
I recently listened to an old Freakonomics podcast where James Choi of Yale argued everyone should get variable rate mortgages. He says on average they'd pay less. Maybe, but that ignores how longer fixed rate mortgages are more heavily subsidized so any premium paid is rather small compared to the benefits. As you say, it's unlikely a 30-year fixed rate mortgage would exist without government backing/subsidies. Certainly not at an attractive rate.
I suggest that you are wrong about subsidizing 15-year and variable mortgages for reasons akin to Choi's point. While maybe the typical person taking out a 15-year mortgages doesn't need a subsidy, we don't want to tilt the incentives towards them getting a 30. I'd argue it's better for everyone if they get the 15. The argument for variable is similar though maybe a little weaker. Either way, the risk subsidy provided to F&F to make those loans is smaller for 15 and negligible for variable. Allowing them to hold variable mortgages might even strengthen their portfolio.
I think that most people are very naive about mortgage finance. They can be easily fooled. And variable-rate loans make it easy to fool consumers. It's really hard to do consumer protection in that context, so encouraging the 30-year fixed rate is actually friendly to the naive consumer.
Absolutely. That's a very different argument than in your daily post but sure. Just a little unexpected to hear that from you.
I can't remember the source or context but I recently heard a similar argument that was surprisingly compelling regarding why the government should do more to protect people from some common behavioral weakness(es) even though it would restrict the freedom of the minority of us who are able to handle such things without harming ourselves.
The assertion that “But with the other hand of government (primarily local government) restricting supply…” seems a bit hard to swallow.
The central government’s tree selling business controls 193 million acres of land, roughly the size of Texas, and located in 44 states, Puerto Rico, and the Virgin Islands, covering about 9% of the total land area in the United States.
( https://www.fs.usda.gov/managing-land/forest-management/products/timber-sales )
The central government’s landlord for the western United Statescontrols 247.3 million acres , roughly an eighth of the United States’ total acreage. True, rents are cheap, at about $2 to $3 dollars an acre, with 80% off discounts for solar farms and the like, but the homesteading program was ended in the 70s and now all that land is closed off to residential construction. As is the total of 615,311,596 acres (27.1% of the total land area of the United States) controlled by the central government, with:
National Park Service: 84,000,000 acres
United States Fish and Wildlife Service: 57,000,000 acres
Department of Defense: 26,000,000 acres
Other federal agencies: 10,000,000 acres
On top of that our financially strapped central government sees fit to remove 37,982,910 acres from productive tax-generating uses in the form of some 221,256 Tax Code created conservation easements. https://www.conservationeasement.us/
And then there are the estimates that regulatory costs “account for about 24% of the price of a typical new single-family home.” (https://www.nahb.org/news-and-economics/press-releases/2023/07/nahb-tells-congress-how-excessive-regulations-and-codes-harm-housing-affordability )
But sure, go ahead and keep telling yourself that all the problems in the world are the fault of the little people having whatever autonomy they still might enjoy and not having a heavy enough boot on their throats. Maybe when the boomers finally die out we will be able to go back to a humane, pro-growth agenda instead of wallowing in this pathetic neo-pagan hippie nature worship inspired anti-growth central government public policy.
I mean overall could America be more like China? Sure, I imagine it can be. I imagine it will be. I’m not sure why that should be a goal particularly especially given that America’s achievements with regard to land and water conservation are typically among its proudest. Among ordinary folk anyway. Admittedly, the younger generations are less likely to care about these things given that they are chiefly interested in the reflection of themselves on their screens. But there is time for them to yet be glad of what has been done in this way. Because what is done, in a real sense, cannot be undone. Because it never is undone. It goes only one way.
To me a good piece of legislation with real world results such as that which established our various national parks, for instance is far more important than any abstraction.
Not sure of the through line between VAT tax and hostility to conservation.
The interior department – though not in charge of all federal land, DOD and Ag being in there – does a lot with a little. It’s one of our more successful agencies despite being buffeted, occasionally abused, by the vagaries of the culture. To me that cultural quality is obviously at a low ebb. Someone who is hostile to federal land ownership and conservation, obviously takes the opposite view - they look around at Americans today and find them wiser and better than their forebears, who saw the frontier closing, realized there wouldn’t be any more of it, realized that overgrazing and timber harvesting were leaving it less than it had been, and creating some real practical problems around erosion, just for one; they felt some awe, some uniqueness to the place, that perhaps called forth in them a desire to do something New in this New World.
So as I say, maybe they were stupid and we are smart.
I obviously don’t agree with that but it’s certainly a valid and indeed popularity-making thing to argue, being much in the spirit of current ideology and the triumph of the extremes, at both ends.
Of course you can’t believe it and be a conservative, but who needs more conservatives, when they’re so damned ineffectual?
Hostility to conservation has been a solid GOP plank for a long time - what, since not long after the Nixon administration’s oversaw the first Earth Day? Since about the time the GOO stopped worrying and learned to love immigration.
Hmmm, do you think there might be a connection there lol.
I’ve noticed reformers always set their sites on things that are pretty good. I guess this is human nature. Hard things are hard for a reason.
it’s like in American cities, they often want to beautify the same street over and over. The rest of the city is just too much to contemplate. Thus: this looks good, it looks better than anything else, so yeah let’s do it over.
Those whose incomes permit the taking of a deduction around their donation of an easement, may attract your ire if you want people to pay more taxes and you are certain there is absolutely no public interest in land use.
But of course many others do so without any such expectation or need, not being wealthy.
Still others are paid for the value of the easement.
Because all an easement is, is a property right. An interest in a property.
So to get rid of the concept - is extremely anti-private property rights, which is inherently statist.
Again, fine, but yours is the radical position.
As with any legal instrument a few cynical bad actors have tried to exploit it, much to the delight of the WaPo (not, I think we can at least agree, a conservative organ) which hates the concept of the environment as elitist, being rather out of touch will polling around open space. These represent such a tiny few that I think we can safely say this regime is more robust than just about anything else in our legal and tax system.
I make no claims whatsoever regarding whatever value should be attached to open space. Only that government designation of such space involves trade-offs that local governments are much better situated to evaluate. There are tens of millions of acres of state parks, state wildlife refuges, state forests, state conservation areas, etc. https://www.playgroundequipment.com/us-states-ranked-by-state-and-national-park-coverage/ and most local county and municipal governments make provision for open space as well. What harm would be done if the federal government's vast land holdings were transferred to the states and their usage reevaluated by the people most affected?
I make no claim that more taxes are needed either. Simply eliminating all of the federal land management agencies and transferring title to their holdings to the states would be a great alternative to a tax increase. I do object to using the federal tax code being used as a bludgeon to advance every establishment bright idea that comes down the pike. Tax codes should be about raising the revenue necessary to finance the government. Our sorry excuse of a federal tax code does anything but that. Scrap it and replace it with a flat across the board VAT with no exclusions.
I should add an interesting example that rather refutes the idea that ordinary people (as against politicians and ideologues) dislike conservation.
And kudos to Trump, because he did, if inadvertently*, something that has been held up for decades by Utah pols: he signed the Congressional bill designating a new Utah wilderness area (the most stringent designation). Actually one of the most significant pieces of permanent conservation in about 15 years, if you don't count Bears Ears which I don't suppose we can.
It's a chunk of the San Rafael Swell. I'm not familiar with it, but my understanding is this is how it went down: the Republicans made a little mistake. They said they would designate some wilderness only "if the locals wanted it".
Well, somebody called their bluff on that. The locals of one county did indeed sign off in it. And that is why their county, basically, is now a federal wilderness area.
*Of course, he undid protections for the Tongas and the Bears Ears, let's not kid ourselves. But whom to blame for the failures of conservation in recent years are the national environmental groups, who have fallen down on the job for woke reasons. Ronald Reagan hated wilderness, but was not such an ideologue that he didn't sign into law - in terms of number of bills - more wilderness areas than any other president (because of a process with a deadline, the RARE II process, that Carter put in motion). Clinton too did a lot of good things. Carter was a great president in this regard, but in general presidents will sign what is put before them.
It’s telling though, that you take a look at the tax code and zero in on an exercise of government authority that is widely popular. It reminds me of at the beginning of each legislative session in my state, Somebody who couldn’t really say why he’s doing what he’s doing, but he thinks that he’s a libertarian, takes a look at everything the government does, all the checks that are written all the poor incentives, all the waste - and zeros in on the aspect of state government, that is arguably the most popular thing it does: state parks. And this guy proposes that all the state parks be sold. Mind you this is a state that is expected to add another 20 million people in 10 years and where the state parks are so popular that much of the time you have to make a reservation well in advance just to be able to get in them.
I am certain that if the states were in charge of the federal lands, there would be a whole lot more grifter opportunities than the current welfare cows.
The people most affected like their grazing leases and they’re hunting leases. What you probably really mean are: people in urban areas. What you are discussing is an aspect of the relentless drive to devolve all political power into the hands of urbanites. Yes I am sure there are some property developers at the urban/wildland interface who would love to be handed some federal open space, To build houses that can then be subject to wildfires and people can blame I don’t know wolves or whatever. And pick up the tab for that.
And the welfare cows have this on their side – that there is no better use for a grassland – than grass... This is an indisputable fact of reality, please understand. Not politics, which is or should be always a second order thing.
Finally, you have obviously not undertaken to do a conservation easement yourself, or you would realize that the tax Iimplications are much overstated, especially in the media mind.
And as regards charitable, giving generally, and taxes: what I guess will be my monthly reminder, environmental giving amounts to one or 2% of the whole. And that includes zoos that includes dogs, that includes animal rescue. Do the math.
ETA: apologies for sloppiness, I am driving while dictating.
Why would you think that about conservation easements? Distinctly odd thing to say. Timber production and grazing are certainly often compatible with easements; Florida just placed thousands of acres of ag under conservation easement, for ag preservation as well as wildlife connectivity purposes.
I guess if we get to where we have the one industry, home building, your points about (helicoptering?) people into the national forests to live may make sense but then we may have other problems.
I am not sure I understand or how to respond to your comment. What I meant by a conservation easement is when someone gets a federal tax deduction for donating the right to develop acreage to a qualified land trust charity or the like.
A typical example is when a DC area federal employee retires and goes out to Virginia horse country and buys an estate. This is quite common among the tens of thousands of OIG staff many of whom are non-supervisory GS-15s who with their law enforcement officer pay (really, most OIG staff spend all day sitting at desks but are authorized to carry weapons for no particular reason and thus pull down the statutory maximum amount of pay under the general schedule, retire at age 55 and go out and build a mansion on a 40-50 acre horse pasture. They donate a conservation easement on about half the acreage and reap a huge tax deduction. Why our broke-a** federal government thinks this is a priority is just a mystery to me although there appear to be plenty of “state capacity” libertarians who sing the song that federal employees are woefully underpaid in relation to those in Singapore or somewhere and we could actually have a government that works if only we shoveled more money into bureaucrat salaries. But there are untold numbers of scams being worked with conservation easements elsewhere. For example donating building facade easements to historic trusts and the like: somebody stuck with an old building in a city that nobody in their right mind would ever want to open a business in (read: most of them) donates a “conservation easement” on the facade and gets a big tax break. Simply ridiculous.
Of course that pales in comparison to the hit to economic growth potential that has been dished out under the Antiquities Act under the last half dozen or so presidents who have been compensating for insecurity in their manhood by trying to outdo each other in the size of national monuments they declare. Richard Nixon, Ronald Reagan, and George H.W. Bush, the most manly of our recent presidents, were the exceptions, not using the Antiquities Act to block economic growth at all.
Under that Act, with the stroke of a pen, Carter unilaterally, with no specific legislative authority or approval from the residents of the affected states, declared 15 national monuments covering 55,800,000 acres were off limits to any sort of productive economic use. W. went marine precluding 582,578 square miles of ocean from any humanity-serving use. Obama, with perhaps more to compensate for, (https://www.hks.harvard.edu/publications/barack-obama-americas-first-gay-president ), tried to outdo him by imposing 29 national monuments, the most by any president, covering1.65 million acres. Trump, with a bit of his trademark swagger, tried to assert his manliness by making some small adjustments to a few of the more ridiculous monuments, but these were quickly reversed by Biden. But Trump couldn’t resist signing a land bill taking many more hundreds of thousands of acrea out of potential productive use. https://apnews.com/united-states-congress-27b092f5988441d1aa511cb95ede993e Biden, as mentioned, reversed Trump but is on pace to set a new record with the following declarations:
Avi Kwa Ame National Monument, Nevada: 300,000 acres
Castner Range National Monument, Texas: 214,000 acres
San Gabriel Mountains National Monument: expanded by 150,000 acres
Berryessa Snow Mountain National Monument, California (within commuting distance to the greater San Francisco metro area): expanded by 150,000 acres
New monument near the Grand Canyon, Arizona: about 1 million acres.
If and when he leaves office, I doubt that he will do so without at least doubling the acreage on which he has already precluded economic activity.
This has a real impact on people’s lives as can be demonstrated on the Indian reservations where there is no privately owned real estate, and poverty is endemic: https://www.theatlantic.com/politics/archive/2016/07/native-americans-property-rights/492941/
Moreover, all this locked up potential makes the USA even more tempting as the target of a hostile take-over. Which may or may not be a bad thing. Would the new despots be worse than the old?
Love the turn from several information-packed paragraphs to a truly awesome, succinct rant. Kudos!
Like others who have commented, I was puzzled about Dr. Kling’s comments about the necessity for Fannie and Freddie in order to assure a market for 30 year fixed rate mortgages. One sees advertising for conventional 30 year fixed rate mortgages, for example: https://www.usbank.com/home-loans/mortgage/conventional-fixed-rate-mortgages/30-year-fixed-mortgage-rates.html I am no expert, but from what I understand “conventional” means that the loan is not through Fannie or Freddie or any of the other multiple federal agencies involved in the home loan business. (see: https://www.consumerfinance.gov/ask-cfpb/what-is-a-conventional-loan-en-117/ ) Or any of the other approximately 18 other federal mortgage programs out there (https://www.govloans.gov/categories/housing-loans/ ).
Surprisingly, despite all this, if one can believe what one reads on the internet, more than half (52.3%) of residential mortgages generated in the US in 2022 were “conventional,” that is, they were loans that were not backed by a government mortgage loan guarantee program. (https://www.bankrate.com/mortgages/mortgage-statistics/#type ) Of course, some would argue that since deposits into the banks doing the lending generally are federally insured up to some limit, then government deposit insurance is the same thing as government mortgage backing. ( https://www.americanprogress.org/article/international-mortgage-finance-101/ )
Internationally, one gets the impression that there appear to be three basic approaches: bank deposit financing (a bank makes the loan and holds the mortgage and receives payments), bond financing , and securitization and sale in secondary markets. Denmark apparently offers 30-year fixed rate mortgages but does so using the bond model. (https://www.businessinsider.com/denmark-mortgage-rates-lock-in-effect-home-buying-selling-easier-2024-5 )
The United States seems to be the only country in the world in which the government backed mortgage-backed securitization (that is mortgages that wind up in the secondary market through agencies like Fannie Mae, Freddie Mac, and Ginnie Mae) is a dominant source of funding for housing finance. Apparently Canada has a single such agency to back home loans that has a dominant share and it also securitizes those loans but it doesn’t seem as if Canada actually has a separate program to back those secondary securities because all of the bundled and sold mortgages already have primary insurance, unlike in the US in which many of the government backed securities were composed of uninsured mortgages (? not sure I have this right). One wonders how much of US GDP is accounted for by these mortgage resale machinations and how much the differences in reported GDP per capita between the US and other developed countries is simply due to government sponsorship of the secondary market in mortgage securities? One also wonders why there don’t seem to be a lot of risk and incentive problems with programs like the VA home loan program that simply guarantee mortgages and don’t get involved in marketing securities, instead leaving that to Freddie and Fannie? (https://www.va.gov/housing-assistance/home-loans/loan-types/ ) One wonders what would happen if all the federal mortgage programs were simply consolidated into a super-VA that guaranteed loans that met standards and let the private market do securitization without government backing? Wouldn’t that be pretty much what Canada does? But why mess with an already financially maxed out federal government, and just turn mortgage programs over to the states?
Heritage has a paper (https://www.heritage.org/housing/report/why-federal-housing-policy-fixated-30-year-fixed-rate-mortgages ) that attempts to address the history of 30-year fixed rate mortgage as cornerstone of the US housing market that flatly recommends dumping Fannie and Freddie. Unfortunately it doesn’t really seem to acknowledge or rebut whatever might be the arguments against such a recommendation.
USA is an outlier (big, rich, diverse, semi-nationalized healthcare, etc.) yet again.
Australia is a good comparable on this one (versus crowded Europe and weird 99-year leases in UK). Oz has home ownership in the same range as US, no 30-year fixed, interest rates floating. Oz banks don't blow up; thanks, in part, to their limited scope of activities and smart immigration powering everything. No GSEs in sight, aside from the banks themselves, so Fannie and Freddie are not needed!
Yet, Oz has the same over-investment in "over-priced" housing. Across rich economies, zoning and building regulations on the supply-side, tax policy and conspicuous consumption on the demand-side. Five-bedroom houses with no children, thanks to keeping up with the Jones's and a tax policy that supports envy (as usual).
I hate the 30 year mortgage. I get that its overnight elimination would impact prices enough to be politically unpalatable, but I wish we could slowly phase it out. Like offer 29 year mortgages next year, then 28 the year after that, etc.
Again - you are asserting that traditional, non-urban land uses are not economic activity.
We have a difference of values, yes, especially around the permanence of ill-advised changes around land use - and fragmentation - and about natural resources in the full, Rooseveltian meaning of that term - but it need not be more than that.
There can’t be anyone on the blog who knows more about conservation easements than I do, but anonymity is important to me. Environmentalists will be the first to get the axe, I assure you!
Disagree, the gov should be totally out of the market of housing finance.
Great idea, gov't support for 30 yr, fixed rate mortgages. Very practical, and politically plausible. Those politicians opposed will be supporting rich housing speculators -- NOT the single home owning couples raising kids on middle incomes.
Would be interesting to see how Dems articulate their opposition to this.
I'd also like to see 20 yr & 15 yr mortgages, as well as a lifetime limit on mortgage interest deduction (2 * avg median income, so about $120,000 now as max interest deduction).
Much nanny regulation could be removed to lower housing costs and obviate subsidies.
How about you privatize it and don't let customers refinance for free? In other economies, customers pay a large fee if interest rates fall and they refinance.
Why is there a public interest in favoring 30-year fixed rate mortgages over variable rate? Does than not in fact make monetary policy a bit less sector neural than it ought to be?
See my response to another comment. Consumers are easier to trick using alternative mortgage instruments, and that is hard to police.
In that case, couldn't Fanny/Freddie deal only with non-tricky products/lenders?
that would be a tiny minority in that industry
But if F/F/G purchases were valuable, would that not incentivize a growing market share for the non-tricky?
Still, point taken. It is really much more the role of prudential regulators than F/F/G to discourage bank from speculation too heavily on the yield curve.
Because we have decided it is good for people to own their home and 30-year mortgages make that more likely.
But how big an obstacle/disincentive would a variable rate loan be? Probably a lot less than NIMBY land use restrictions.
If you say it enough times it must be true, right? Honestly, I don't have that answer. But whatever obstacle/disincentive it is, the more obvious concern is disruption.
Also, note that land use restrictions reduce supply and the end of fixed rate mortgages would likely reduce demand so they are indeed very different.
When you write, “our housing market” is dependent on them - I am not sure if you mean young homeowners are so dependent, or the home building industry.
Either way, I read it as subsidizing sprawl, which I realize was long ago shelved as a topic but unfortunately I’m not in a position to forget about it, where I live.
So maybe that sentence could use elaboration but this was an interesting piece.
Sprawl, yes. Without mortgage subsidies, more people would be living in apartments which have a much small environmental footprint.
The deeper you go on the issue Kling raises, the more Sowell's suggestion there are no solutions, only trade-offs comes into play.
Maybe in neighborhoods with aging homeowners, where the schools sometimes lose enrollment - a non-subsidy of new builds/sprawl would lead to more people moving in with their elders, inheriting their houses in advance.
This would be less wasteful, so not pleasing to an economist; but then again, AK often opines on the benefits of family being in close proximity.
Escalating homes prices haven't seemed to make it happen and concern for climate change hasn't seemed to make that crowd do it so I'm not expecting reducing home ownership subsidies would do it either but who knows? Sometimes these things just need the right timing.