Experts Discuss Housing Crisis, Solutions
The US housing market is on life support, said Professor Joseph Stiglitz at a forum sponsored by Columbia Business School, the Progressive Policy Institute, and Zillow April 4 and 5 in New York.
The event, “America’s Housing Crisis: Private-Sector Responses and Public Policy Innovation,” brought together real estate experts to discuss possible solutions to the global and US housing downturns that have accompanied the worldwide financial recession. Three Columbia Business School centers collaborated on the forum: the Jerome A. Chazen Institute of International Business; the Paul Milstein Center for Real Estate; and the Richard Paul Richman Center for Business, Law, and Public Policy.
Stiglitz, a professor of finance and economics, and executive director and cofounder of the Initiative for Policy Dialogue, said that 2 to 3 million US homes have already been lost to foreclosure, and another 3 to 4 million could follow in the next several years. “Foreclosures beget foreclosures,” he said.
And while housing prices have stabilized, there is no guarantee they won’t drop further. He chastised mortgage lenders for their part in creating the problem. “I think what went on before the crisis was unconscionable,” Stiglitz said, citing predatory lending, fraud, and abuse of lending practices for mortgages, including discrimination toward potential homeowners by banks granting loans. “It was obvious there was a bubble.”
Stiglitz said that for the rest of the world, the United States is a poster child of what not to do. Ronnie Chan, chair of Hang Lung Group Limited and its subsidiary Hang Lung Properties Limited, noted that China is watching the US response to avoid the same mistakes as it moves toward both improving its housing market and a more Western-style free-market economy. Chan said the number of homes sold in China each year is 25 times the number of homes sold in the United States. But despite a large and fast-changing market, China has still experienced a housing downturn during the global recession. The difference lies in the extent of the problem and the government’s response.
“All the factors that affect US housing also affect China, but the tools to deal with them are different,” Chan said, explaining that the Chinese government’s economic regulations significantly affect real estate. For instance, the Chinese government could tell banks how much they can loan or restrict homebuyers from purchasing a second property.
Chris Mayer, the Paul Milstein Professor and Real Estate and co-director of the Richman Center, agreed with Stiglitz that home ownership in the United States should still be encouraged as a way for buyers to build equity and savings instead of debt. Mayer believes allowing the private market to take ownership can help solve the crisis and pointed out that while it can be difficult to regulate banks, it may be easier to move individual homeowners toward viewing their homes as tax-deferred savings.
“Embedded in owning a home and paying down a mortgage is saving,” Mayer said. However, the decision to own a home should be an individual one. “There shouldn’t be a social optimum placed on home ownership. Many, many people want to own homes, but it should be based on individual circumstances. For those who do, we should facilitate stability.”
Stiglitz cautioned that switching control in a market where 90 percent of all mortgages are currently underwritten by the federal government would need to be done slowly and carefully. He recommends a “Homeowners’ Chapter 11,” which would force owners to give up equity but allow them to restructure their mortgages.
“Home ownership is still the most important asset for Americans and people around the world, and it should be made safer for everyone,” Stiglitz said.