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Housing Boom and Bust
...When the political crusade for affordable housing took off and built up steam during the 1990s, the share of their incomes that Americans were spending on housing in 1998 was 17 percent, compared to 30 percent in the early 1980s. Even during the housing boom of 2005, the median home took just 22 percent of the median American income.

What created the illusion of a nationwide problem was that, in particular localities around the country, housing prices had skyrocketed to the point where people had to pay half their income to buy a modest-sized home and often resorted to very risky ways of financing the purchase. In Tucson, for example, “roughly 60% of first-time home buyers make no down payment and instead now use 100% financing to get into the market,” according to the Wall Street Journal. Almost invariably, these locally extreme housing prices have been a result of local political crusades in the name of locally attractive slogans about the environment, open space, “smart growth,” or whatever other phrases had political resonance at the particular time and place.

Where housing markets have been more or less left alone — in places like Houston or Dallas, for example — housing did not take even half as big a share of family incomes as did comparable housing in places like the San Francisco Bay Area, where heavily hyped political crusades had led to severe restrictions on building. It was in precisely these extremely high housing-cost enclaves that the kind of people for whom the national housing crusade expressed much concern — minorities, low-income people and families with children — were forced out disproportionately....

...Lenders did not spontaneously begin to lend to people who would not have qualified for loans under the traditional criteria that had evolved out of years of experience in the market. Such risky loans were made under growing pressures from government regulatory agencies and politicians, and even threats of prosecution from the Justice Department if the statistical profiles of borrowers whose loan applications were approved did not match the government’s preconceptions.

The growth in subprime loans was one way of meeting arbitrary quotas for lending to people who did not meet the criteria for loan approval that had prevailed for years. Quota lending was one of many political patches put over problems caused by previous political “solutions.” Often these interventions have focussed on some limited goal, with no real concern about, or even awareness of, the wider ramifications of what they were doing. It is doubtful whether most of the state politicians of the past who enacted laws to prevent branch banking had anything in mind more far-reaching than enabling local banks to avoid having to compete with branches of much bigger and better-known banks. It seems even less likely that these local politicians felt any responsibility for the thousands of bank failures during the Great Depression of the 1930s....