The Campaign Spot

On Housing: ‘Government cheese is getting baked into the pie.’

An interesting assessment from an analyst at the Motley Fool:

The primary reason that I am on board with Generalissimo Santelli when it comes to housing help is that I don’t see the plan as a good use of government money. The housing market needs to find a new equilibrium and it’s not going to do that while government cheese is getting baked into the pie. And that’s not to mention the fact that the money is going to less responsible borrowers that are now counting on a refinancing to be able to keep their home.

Ben Bernanke recently addressed such concerns by suggesting that the situation is similar to calling the fire department when your neighbor sets his house on fire while smoking in bed. The idea is that your neighbor should be punished for smoking in bed, but you don’t want to see your house go up in flames in the process.

While Professor Bernanke has a few more years of economic study under his belt than me, I’m still going to have to disagree with him. If my neighbor defaults, my house doesn’t go up in flames, the construction will be just as sound as it ever was, and I’ll continue to be able to live comfortably in it. After all, I was never depending on an inflated home value as a source of income.

A theory, prompted by the arrival of the annual property-tax assessment of Casa Geraghty: Some of the folks most horrified by the downturn in housing prices and the prospect of a lengthy slump are not homeowners — only a small percentage of whom are looking to sell in any given year — but local governments, who derive large chunks of their budget from property taxes. After exploding revenues in the beginning and middle part of this decade, property values are now being assessed at lower levels, a pleasant tax cut for some of us, but a funding crisis for them.

UPDATE: Of course, local governments could do what Fairfax County is doing — raising property taxes in order to make up the shortfall.

Lower home values, higher tax rates! Swell!

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