Bob CollinsHow does the country turn around the housing market? Start bulldozing some of them, according to one expert.
David Rosenberg, chief North American economist at Merrill Lynch, says the country is “attacking the symptoms” instead of the problem.
“It’s pretty foolhardy to believe anything is going to reach any sustainable low until we put in a firm bottom on residential real estate prices,” he said today, which is economist-speak for create a supply problem to create a demand.
If the Treasury Secretary can tell bank officials, “you’re going to take this bailout money no matter what,” then maybe municipalities need to stop issuing building permits.
He made a similar suggestion this week in the Financial Times:
What we probably need is a supply-side resolution, either creating regional land banks to ring-fence the inventory or a moratorium on new housing starts to prevent further corrosion in residential real estate values. Supply-demand divergences are likely to persist through 2009, in our view, and will require even further contraction in construction activity before balance is restored in the real estate market.
It is a frugal future, indeed, but we believe the US economy will endure nonetheless and will inevitably emerge all the stronger.
The negative wealth effect will subside and, along with that, the savings rate should start to level off – likely near its pre-bubble normalised level of 8 per cent.
“I’m flabbergasted we’re seeing housing starts at all,” he said today.
What would the effect be of a moratorium on housing starts around here? Probably property tax increases. Look at Woodbury, one of the fastest-growing communities in Minnesota over the last decade. It financed city operations largely on the strength of the money it made from housing permits. It issued only 14 permits in December, and is now trying to slash its budget to account for the lost income. The city doesn’t take local government aid from the state.
And therein lies a significant part of the economic problem: One hand doesn’t know what the other hand is doing. Some cities are depending on money from a policy — if you believe Rosenberg — that is only making the economic situation worse. In this regard, efforts to boost the housing sector are only making matters worse.
