Problem could be too many homeowners

Everything will be all right if we just fix the housing problem. That was the hope investors clung to as they watched Fannie Mae and Freddie Mac crumble.

The presidential campaigns reflect a similar faith in housing’s curative power. Sen. John McCain recently suggested that not merely mortgage-loan defaults but also anxiety about those mortgages was our worst problem: “Americans are uncertain about this crisis.”

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Amity Shlaes, a senior fellow in economic history at the Council on Foreign Relations, is a Bloomberg News columnist.

“Three-Bedroom Ranch,” a Barack Obama campaign commercial, suggests that America needs a “plan to build” for the middle class rather than subsidize corporate interests. The candidates seem to believe that recovery is something with French doors and a new roof.

But what if houses aren’t a haven but a prison? What if even a booming real estate market itself is a problem? That’s the theory of a winning Phelps — not Michael Phelps, the Olympic swimmer, but Nobel Prize economics laureate Edmund Phelps of Columbia University. Phelps deplores the collective energy Americans spend on family housing.

“It used to be said that the business of America was business,” Phelps says. “Now the business of America is homeownership.” To grow optimally, he says, America needs to get beyond its house passion.

Back in 2005, when the troubles of Fannie Mae and Freddie Mac weren’t yet commanding the front page so regularly, the government was already spending about $41 billion to subsidize housing directly.

More than triple that amount, or $147 billion, was foregone on indirect tax subsidies to homeowners. That chunk of change might have been used for any number of government projects: pounding percentages into fifth-graders’ heads, lowering the capital gains tax, declaring summer gas holidays. Phelps’ anti-house argument calls to mind the analysis of one of his Columbia colleagues, Michael Heller. Heller’s new book, “The Gridlock Economy,” posits that “too much ownership wrecks” the economy.

The air traffic controllers’ association says most flight delays would be reduced if we built just 50 miles of new runways. O’Hare Airport in Chicago desperately needs reconfiguration. Yet, as Heller notes, homeowner associations in suburbs have managed to prevent such work, just as homeowners in other cities have stalled airport expansions.

Philosophy as antidote to subprime foreclosure is a different angle than the usual discourse about housing but one that reveals the limits of our political imagination. That imagination is worth stretching, for while America’s economic salvation does lie somewhere, that place is probably not a house.