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Housing Bust: Sowell Series Starts Today
...Indeed, a New York Times news report flatly contradicted what was said in the New York Times editorial just cited: "A sharp fall in mortgage rates since the early 1980's, a decline in mortgage fees and a rise in incomes have more than made up for rising house prices in almost every place outside of New York, Washington, Miami and along the coast in California."

An earlier study by the Heritage Foundation likewise found that "the ratio of monthly cost-to-gross income decreased" — rather than increased — again, with the exception of "a few metropolitan markets on the East and West coasts."

Other scholarly research has likewise found that affordable housing, by common standards, has been the norm across most of the country, but with glaring exceptions in places where average housing prices are some multiple of what they are in the nation as a whole.

Almost invariably, these are places where severe local government restrictions on land use, and other impediments to building, have driven the cost of houses and of apartment rents to levels that take as much as half of the average family's income just to put a roof over their heads.

For the country as a whole, however, homebuyers have paid no more than the old-fashioned standard of 25% of their incomes for housing in any year since 1985. Renters have in recent years paid a somewhat higher percentage of their smaller incomes but not more than 30% in any year over the past several decades.

Neither by comparison with the recent past nor by comparison with other countries today is most housing in the United States unaffordable. The median-priced home in the United States as a whole is 3.6 times the median income of Americans. For Great Britain, the median-priced home is 5.5 times the median income and, in Australia and New Zealand, the ratio of home prices to income is 6.3.

Acknowledging this reality would cause a widely accepted vision, and the national crusades and policies built upon it, to collapse like a house of cards. Instead, facts that would undermine this vision and this political crusade have been largely ignored.

Despite the widespread assumption that government intervention is the key to making housing affordable to people of moderate or low incomes, history shows that it has been precisely in the times and places where government intervention has been greatest that housing costs have been both highest in absolute terms and have taken a larger share of the average income.

This is true whether we compare different places at the same time or different time periods with one another. If we look back to the beginning of the 20th century, when government played a much smaller role in the housing market and there were far fewer restrictions on building, the average American's housing costs were a smaller share of consumer expenditures than at the end of that century.

Back in 1901, housing costs were 23% of consumer expenditures. But, by 2003, housing costs were 33% of much higher consumer expenditures. There are local data that tell a very similar story:

Until 1970, median homes in nearly all U.S. metropolitan areas typically cost about twice as much as median family incomes in those areas. Depending on the prevailing interest rate, this meant that a family dedicating a quarter of its income to a mortgage could pay off a loan for a home in a little more than 10 years.

Even in coastal California, home prices were very affordable before the severe housing restrictions that began there during the 1970s. As late as 1969, the median-priced home in San Francisco cost no more than 2.3 times the median family income in San Francisco at that time.

That same year, the median price of a home in San Jose was 2.2 times the median family income in San Jose. Spending one-fourth of the median family income on monthly mortgage payments would pay off a median mortgage in San Jose in 12 years.

A decade later, the median family home in San Jose cost 4 times the median family income in San Jose — and now it would take 40% of the family's income to pay off the mortgage in 30 years. By 2005, at the height of the housing boom, the median price of a home in San Jose was 7.5 times the median family income there.

These variations in the affordability of housing prices over time tell essentially the same story as variations in the affordability of housing prices from place to place at a given time: Where there is the greatest government intervention, housing is least affordable.

Nor is this pattern confined to the United States. In 23 of the 26 urban areas around the world where housing is rated "severely unaffordable," there are severe land-use restrictions under the heading of "smart-growth" policies.

Advocates of "affordable housing" seldom — if ever — seek to remove government restrictions that have led to higher housing prices. Instead, they seek various ways of either forcing the private sector to charge lower home prices and lower apartment rents, or else they seek to use the taxpayers' money to subsidize housing in one way or another.

In other words, they do not seek to reduce the government's role in the housing market but to increase it. They do not seek to lower housing costs but to conceal housing costs with taxpayer-provided subsidies or with laws that prevent those costs from being expressed in the prices charged. ...