As Congress continues to delay shutting down the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, affordable housing advocates are ramping up the pressure on the federal government to fund “housing for the poor.” These groups may have good intentions, but their way of thinking is typical of the dangers that crony capitalism poses to all consumers.
Businesses shouldn’t focus on earning profits for their owners, the thinking goes, because they have a duty to serve some higher public purpose—namely, funding housing projects for low-income families. This supposedly superior motive allows advocacy groups and businesses to lobby for subsidies. And it’s turned low-income housing into a giant business.
Developer Norah Lichtash, for example, wants more federal subsidies to develop low-income housing in the Philadelphia area. Lichtash’s latest ($13 million) project would be her group’s 10th housing development in Philly. She already relies on subsidies, but she wants another national source of funding.
Similarly, Sheila Crowley, president of the National Low Income Housing Coalition, believes funding her group’s favored programs takes precedent over protecting the taxpayers. Crowley, who recently received “a Rockefeller Foundation sponsored residence at the Bellagio Center in Italy to engage in research on how to reform the mortgage interest deduction,” wants the GSEs taxed to fill up the so-called housing trust funds.
As Heritage has pointed out, former Federal Housing Finance Agency director Ed DeMarco spared federal taxpayers the cost of using these funds, but new Director Mel Watt appears likely to turn the spigot on. Of course, taxpayer protection is the last thing advocacy groups care about. According to Crowley:
We are very hopeful that when Mr. Watt catches his breath and finds his way around the building, this [issue] will be at the top of his agenda.… This is an expense that they have to pay.… Just as they have to pay their light bill, this is an expense of doing business.
This sort of mindset—that businesses don’t exist to earn profits but to be taxed to fund someone else’s idea of a greater good—is becoming pervasive in the housing finance market. There is no place for a legal duty to serve in a market economy.
Using Fannie and Freddie to fund housing for the poor is an inefficient way to reallocate credit in the housing markets. It also proved quite costly to federal taxpayers and to millions of homeowners who lost their homes.
The federal government already spends more than $50 billion annually to fund “affordable housing” programs. (This figure excludes other federal housing initiatives, such as the Federal Housing Administration, the Veterans Administration, and Ginnie Mae.)
Perhaps the subsidies that have gone on for decades mainly enrich well-connected business owners and actually hurt those that affordable housing advocates purport to help? Maybe a system of pervasive subsidies actually pushes home prices (and rents) higher?
An honest debate would be better than simply throwing more taxpayer money to those clamoring most loudly for subsidies. Either way, taxpayers deserve a resolution to the GSE problem.