The Housing Crisis Recap

As with all "crises," there are usually the finger prints of government all over it. The housing crisis is no different. It was government restrictions on building that distorted the market signals that ultimately led to short supply in many coastal markets. The short supply, created by smart growth initiatives in government, drove up the price of homes to levels that were unsustainable with real wage growth.

The financial system based on the proverb of sustainable, consistent growth in home prices was bound to collapse once growth in prices collapsed. There is nothing now that can really be done about this situation until wages and home prices find an equilibrium. That means the solution is ultimately lower home prices, rising wages or some combination of the two.

This disaster should be a lesson to all legislators. While the initiatives may have the best of intentions in the beginning, the unforeseen consequences of government interference in markets always creates a cure that is worse than the original disease.

Here is good piece on the crisis.