Continued weakness in consumer confidence, employment and house prices reinforces the urgent need for effective and comprehensive measures to stabilize the housing market. Thus far policy solutions for housing have been largely fragmented and reactive to emerging problems rather than offering a coordinated strategy executed to achieve long-term market stabilization. This threatens to prolong the crisis which continues to erode confidence, housing market activity and overburdens already weak servicing operations.
The threat of job loss and future home price erosion are strong deterrents to home purchase. Understanding the drivers of weak housing market demand and oversupply leading to disequilibrium is critical to fashioning a successful policy response that will ultimately stimulate demand, reduce housing inventories and stabilize home prices long-term. A workable solution to achieve market stabilization must ensure that incentives are aligned across market participants, and is designed such that borrowers, lenders, investors and the government share in the costs and benefits in an equitable manner. The current housing crisis signals a classic market failure which requires a clear federal role at bringing stability to the market. However, that role does not mean adding additional financial burdens to taxpayers. A creative and comprehensive private-public housing policy initiative utilizing a combination of shared-equity programs and net worth certificate-like instruments shown below could over time stabilize the market while imposing no direct costs long-term to the federal government.
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Clifford V. Rossi, PhD, Executive-in-Residence and Tyser Teaching Fellow
Center for Financial Policy
Robert H. Smith School of Business
University of Maryland
Contact Information: firstname.lastname@example.org or 301-908-2536
For additional studies, analyses and information, please visit the Center for Financial Policy website at http://www.rhsmith.umd.edu/cfp/.
The views of this article are those of the author solely and do not represent those of the Center for Financial Policy or the University of Maryland.