Government Guarantee for Housing Is Bad Idea
February 9, 2011
There are many possible ways to reform the U.S. housing finance system, but any explicit government guarantee for housing would be a tragic mistake. It would repeat the errors of history by putting taxpayers and the housing industry itself at risk, says Anthony Randazzo, director of economic research at the Reason Foundation.
In his new study, "Ten Arguments against a Government Guarantee for Housing Finance," Randazzo says:
- Government guarantees always underprice risk in order to provide a subsidy for lending.
- Guarantees eventually create instability.
- Guarantees inflate housing prices by distorting the allocation of capital investments.
- Guarantees degrade underwriting standards over time.
- Guarantees are not necessary to ensure capitalization of the housing market.
Source: Anthony Randazzo, "Ten Arguments Against a Government Guarantee for Housing Finance," Reason Foundation, February 2011.
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