Whatever you subsidize increases

It's one of the basic rules of economics: if you want more of something, get the government to subsidize it.

It works like this:

1. The government identifies a special-interest group that needs taxpayer money (or more taxpayer money) to buy something that the government wants them to buy. Let's say, for example, that the government wants more people to buy homes, but lower-half middle class earners and below have almost no chance to save at least the 20 percent cash down payment required for an ordinary mortgage,

2. The government establishes one or more programs to subsidize those persons' home purchases, especially for first-time home buyers.

The result? First-Time Homebuyers Decline by 40 Percent Since 2004

The reason is that the government thought it would subsidize home buying, but what it really did was subsidize home selling.

Ed Pinto, co-director for the American Enterprise Institute’s Center on Housing Risk, said in a separate interview that housing prices are outpacing wages because the federal government has created artificial price increases by loosening credit requirements.

The federal government helps finance about 93 percent of first-time home purchases.

But subsidizing home financing does not subsidize home supplying. The pace of home building is finite and limited, while the government's cash coffer is neither. So:

Pinto used the analogy of buying a car: A car company is selling a car for $10,000, and the government is offering $2,000 in financing to make it easier for the buyer to purchase the car. But the car manufacturer is unable to increase the supply of the car, and the demand has increased because the buyer has more leverage. This means that the car may now sell for as much as $11,500. The closer the price gets to exceeding that $2,000 mark, the greater the benefit to the seller, while the subsidy decreases in value.

And the result:

In Atlanta, for example, housing prices for the lowest tier of income earners have jumped about 175 percent in the past six years, while the middle tier saw an 80 percent increase, and the top tier saw a 45 percent increase. This trend between tiers is mirrored in every other major city included in the index.

“The lowest-income individuals have the least ability to ride this roller coaster,” Pinto said.

Did anyone see this coming? Sure, conservatives did, but everyone knows that conservatives hate poor people and are racist Nazis to boot, so why pay any attention to them? Meanwhile,

The number of first-time homebuyers in the U.S. declined by about 40 percent between 2004 and 2015, according to recent research from the Federal Reserve Bank of Philadelphia. ...

Susan Wachter, a real estate professor at the Wharton School of the University of Pennsylvania ... said with the current trajectory, the U.S. could conceivably see a market composed of 50 percent homeowners and 50 percent renters in the coming years.

Now, I do have to say that eliminating, or reforming or reducing the subsidies will not alone solve the problem. GDP growth rate has been less than 3 percent since 2005, and constant-dollar income trends have looked like this:

Until the economy gets back into gear, the home ownership rate will continue to decline. But that will require a major rethink of every aspect the government puts its hand into the national economy, and quite frankly, almost no one in either party wants to do it and they don't have the will, courage or intellectual capital to do it, anyway.

So the trend will continue and home ownership will increasingly become the privilege of the upper-income tiers. Because fairness, comrades!