In the latest issue of National Review, my colleague Chris Papagianis and I make the case for a radical overhaul of the federal government’s role in housing finance. Chris and I are convinced that the bias in favor of housing investment creates serious economic distortions, and we offer a number of possible reforms. But we also acknowledge the extraordinary political power of the housing industry, which has been the key barrier to reform efforts from the right and the left.

So I was very encouraged to hear that the Obama administration is at least talking about an overhaul, as Zachary Goldfarb reports in the Washington Post:

Since 2008, the federal government has committed hundreds of billions of dollars, much of it nonrecoverable, to try to keep housing afloat and ensure that borrowers can get loans. Fannie Mae and Freddie Mac, the mortgage-finance giants seized by the government in September 2008, and the Federal Housing Administration have been nearly the only sources of backing for new loans.
Now the Obama administration is beginning to look for ways to gradually unwind the massive government programs supporting homeownership and restore the traditional role of the private sector. Three months ago, the Treasury Department and HUD released seven broad questions about the future of housing. Comments from the public are due Wednesday, and the administration is required by the financial overhaul legislation to offer a proposal for housing reform by early next year, including restructuring or replacing Fannie and Freddie.

If it really is true that the Obama administration intends to reduce rather than expand the federal government’s role in the housing sector, I’d be very impressed. At least one HUD official suggests that there is less to this story than meets the eye:

Andrew Williams, the deputy assistant secretary for public affairs, said not to read too much into the notion that the administration’s policy differed significantly from previous administrations. “[Y]ou are overreading some kind of hard pivot here,” he said in an e-mail. It’s “just a recognition of how much the foreclosure crisis has hurt homeowners.”
Williams declined to make a Treasury official available to discuss the administration’s housing policy on the record.

Yet another HUD official, Raphael Bostic, is saying things that are impressively sane:

“In previous eras, we haven’t seen people question whether homeownership was the right decision. It was just assumed that’s where you want to go,” said Raphael Bostic, a senior official in the Department of Housing and Urban Development. “You’re not going to hear us say that.”
Bostic, who has published leading scholarship on homeownership, added that owning a home has a lot of value, but “what we’ve seen in the last four years is that there really is an underside to homeownership.”

Goldfarb describes what a reformed housing market might look like, and it bears close resemblance to the long-term vision Chris and I have in mind:

The shift in approach could mean higher down payments and interest rates on loans, more barriers to lower-income people buying houses, and fewer homeowners overall, government officials said. But it could also pave the way for a more stable housing market, one with fewer taxpayer dollars on the line and less of a risk that homeowners will not be able to pay their mortgages. And it could spell changes throughout the financial markets, as investors choose new places to put their money if the government withdraws some incentives for investing in the U.S. mortgage market.

Overall, I’d say this is mildly encouraging news. Even the best outcome wouldn’t make up for the damage we’re likely to see to the health sector — subject of a forthcoming article — but it is certainly something.