I’m from the government and I’m here to help
“Capitalist” countries have nationalized the housing market.
Socialism is a dirty word in many parts of the US, but as the FT reports, the government has turned its mortgage market into a giant nationalized enterprise on a par with China’s Red Army with over 90% of mortgages subsidized by the state and aided by so-called “progressive” or “redistributive” policies.
In the UK, the government have also become entwined with the housing market, albeit in different ways. Rates have also been slashed close to zero; tens of thousands are buying homes arm-in-arm with the state under ‘shared equity schemes’; and one-third of all mortgages come from the two state-controlled banks (Lloyds and RBS); very reminiscent of supposedly communist China, where most banks are majority-owned by the state with small public floats.
The BoE has (supposedly temporarily) pumped over GBP14bn into a scheme called “Funding for Lending” aimed at forcing down the price of business loans and mortgages; also reminiscent of the “short-term” rescue of Fannie and Freddie five years ago. In spite of all this government-sponsorship (or perhaps due to its bubble reflation), analysts argue, “we still have a market where pricing is not at a rational level.”
[A] ttempts to send the two mortgage underwriters back into the private sector have withered on the vine.
…“There was momentum before the election but that has completely evaporated,”
Across the Atlantic, the tentacles of the state have also become entwined with the housing market, albeit in different ways. The British government would not set Soviet-style targets for tractor production or widget manufacturing. Housing is a different matter.
The central interest rate has been slashed to close to zero. Tens of thousands are buying homes arm-in-arm with the state under “shared equity schemes”. Most strikingly, one in three mortgages taken out in the UK are through two government-controlled banks.
“We still have a market where pricing is not at a rational level.”
…the move could create a new “housing bubble”, replicating the sub-prime crisis in the US
The question goes to the heart of the dilemma faced by politicians on both sides of the Atlantic. How can they avoid another crash if and when they withdraw support from the market?
“But politicians will struggle to square the circle. It seems likely they will remain chained to policies that prop up the housing market, even as they keep paying lip service to first-time buyers who they cannot help en masse at the same time.
“It’s broadly accepted nowadays that China still lives under the banner of ‘communism’ despite capitalist markets playing an increasing role in society. In Britain and America – at least where the housing market is concerned – the reverse process seems to be taking place.”
What could possibly go wrong?