Bernanke’s frustration with housing is understandable. The seasonally adjusted Case-Shiller price data for October 2011 showed a decline from the previous month in 16 out of 20 markets, including Greater Boston. The housing market malaise weighs on the larger economy because low prices mean fewer construction jobs and because homeowners spend less when they feel less wealthy.
Yet while macroeconomic conditions might improve if the housing market perked up, it’s not obvious that the government should look for ways to artificially push up home prices.
Low housing prices means greater housing affordability, and current prices are closer to what market fundamentals would justify than the inflated prices of five years ago were. We overbuilt by nearly 3 million housing units during the boom, so we cannot avoid a painful period of limited construction that allows demand to catch up with supply.
Because the Federal Reserve knows the limits of government policy-making, it’s focusing its attention on two narrow problem areas: the large supply of vacant homes, and the ample number of owners potentially facing foreclosure.
The paper proposes converting bank-owned real estate into rental housing to reduce the stock of vacant homes. America does need to turn towards renting after an undue emphasis on owner occupancy. But our current vast supply of vacant housing was built to be owned, not rented, and conversion is quite difficult.
As landlords know, renting is a tricky business that is made easier with compact, ideally multi-family units - like Boston’s triple-deckers, unlike newly vacant homes built in exurbia. There is a close connection between housing type and ownership. More than 85 percent of single-family detached houses are owner-occupied, while more than 85 percent of units in large multi-family buildings are rented.
