How does the Land of the Free (market) manage to have house price-to-income ratios less than half of us here…
How does the Land of the Free (market) manage to have house price-to-income ratios less than half of us here in Oz?
Well, it's an interesting story. Much of the magic happens in this building, Fannie Mae HQ. /1 https://t.co/NKI4H0ZCmb
Australians have heard of Fannie Mae, and its sibling Freddie Mac, through the clusterfuck of the GFC, where they were top billing. (There's also Ginnie Mae.)
These government-created institutions have their origins in the Great Depression. /2
FDR got the ball rolling. The basic idea is that these government-sponsored enterprises buy mortgages from traditional lenders, to securitize them.
This frees up the lenders to offer even more loans to buyers. /3
Including low-income buyers who would normally not qualify for a mortgage, because the loan would be considered too high-risk.
It's a type of socialism (😲) really, hidden behind financial instruments. /4
Basically it's a nationalisation of housing finance, of Soviet proportions. Fannie Mae for example is the largest company in the US, and the 4th-largest in the world, by assets.
But having controls on the finance also introduces significant controls on the 'market'. /5
If it even makes sense to call it that, because really government is heavily steering what goes on here. Like I say, Soviet-level socialism. (Not a critique, just an irony.)
Fannie, Freddie and Ginnie get to say which mortgages they'll buy. /6
Because of course they're not going to agree to allow banks to offload unaffordable high-risk dross onto them, if possible.
So this means they help control house prices. By some control over the size of mortgages. /7
That's about it really, in my understanding anyway. That's how houses are significantly cheaper in the US. Massive government intervention in the 'market'.
Hidden behind proxy institutional government enterprises. /8
Does Australian government have the appetite for massive government intervention in the housing market, to fix it?
History suggest it's all that ever makes housing widely affordable and available, anywhere. Not 'supply'.
/end https://t.co/yfy0nB2udT