The newspapers are full of stories about politicians frantically searching for a way to prevent foreclosures and dramatic declines in the price of houses across the United States. The thinking seems to be that high house prices are good for the economy. Maybe they are good for the banks and Wall Street firms who lent money on the theory that a crummy 100-year-old wooden house was worth $1 million. It is tough to see how high house prices are good for the economy as a whole and for job growth.
Suppose that I want to employ a woman who supports a family of four in California, Boston, or New York City. I have to pay her enough that she can afford to buy or rent a three-bedroom place to live. If that three-bedroom place costs $1 or $2 million, I will have to pay her quite a lot of money simply so that she can survive. I might find that a worker in Guadalajara, Bangalore, or Shanghai could do the job for less than half the salary and yet live quite comfortably. The next time that I get a big tax break from the Federales, therefore, I invest it in a new office somewhere that has a reasonable cost of housing and therefore a reasonable cost of labor.
We spent most of our investment capital over the last ten years building huge and luxurious houses. Americans were by far the best-housed people in the world before, but now many of us are truly living like kings. Does this help our international competitiveness? Does an employer care that we can go home to a 6,000 square foot McMansion and watch a 60″ TV in our media room? I don’t see why the employer would care. In fact, an employer would probably prefer that his workers be housed in sufficiently squalid conditions that employees were encouraged to linger in the office. Certainly the employer doesn’t want to have to pay a worker extra just so that he or she can afford to pay rent or mortgage in an artificially inflated housing market.
Reporters and pundits are saying that government intervention in the housing market is inevitable. As we hand out tax dollars to ensure that $1 million houses are still priced at $1 million, let’s not forget to hand out some more tax dollars to employers as an incentive for them to keep hiring Americans who need to pay a $70,000 per year mortgage.