Center for Community and Economy Newsletter – July 21, 2011

1. Where’s George Bailey When We Need Him? Part 2

By Allan Carlson

(Continued from last month’s Community and Economy Newsletter, which outlines the achievements of the government’s pro-family housing policy in the mid-20th century, then introduces the subsequent disintegration of the housing boom’s family-centered nature.)

By the early 1960s, the government’s pro-family housing policy could be judged a success. To be sure, there were problems, but all the same, George Bailey would surely have been proud.

However, the housing and mortgage markets began operating in strange new ways, starting about 1970. A massive investment in housing certainly continued, with total non-farm mortgage debt climbing from $358 billion in 1970 to $2.2 trillion by 1987, an after-inflation increase of over 300 percent. The number of housing units climbed from 65 million to 90 million. However, the number of young married couples (husband aged 25-34) in homes actually fell by 2 percent over these same years; the number of child-rich households with six or more people plunged by 57 percent.

What was happening? In short, the family-centered nature of the American housing boom unraveled. Policy changes were part of the dynamic. Under feminist legal pressures, the “husband-only” income rule for determining the maximum of a family’s mortgage disappeared. A wife’s income must also be included. Results included upward pressure on housing prices and a disincentive to be an at-home mother. Housing officials exhibited new interest in providing shelter for “non-traditional” households, explaining that there was no longer a “standard family” guiding housing demand. They introduced easier eligibility standards, and the proportion of new FHA mortgages going to married-couple households with children fell sharply. Government publications stressed that houses were increasingly purchased with “resalability” rather than “livability” in mind. This meant that housing was now more a form of investment and a hedge against inflation than a shelter for family life and growth.

Housing analysts Georg Sternlieb and James Hughes pointed to an even more bizarre development: the number of distinct housing units climbed by 38 percent between 1970 and 1987; while average household size fell from 3.14 to 2.64, a decline of 16 percent. This meant that “the nation’s population is diffusing itself into an expanding supply network.” More darkly, they concluded that “the very decline in the size of household” may in fact be “a consequence of the availability and costs of housing units generally.” *

Translated from academese, this meant that America’s very success in building homes now perversely encouraged family breakup through separation and divorce. Direct and indirect subsidies also encouraged homeownership among singles by substituting government help for the economic gains (such as economies of scale) once provided by marriage and family living.

In addition, your friendly neighborhood savings-and-loan societies changed. In the late 1970s, they gained the ability to offer checking accounts and shed many state regulations. In 1980, Congress gave the “thrifts” power to make commercial loans, issue credit cards, and otherwise behave like regular banks. The result was disaster: a series of speculative loans and investments that brought on the infamous “savings and loan crisis” of the 1986-95 period. Half of the nation’s savings and loans went out of business; taxpayers assumed $125 billion in bad debt. George Bailey rolled over in his Hollywood grave. At great public cost, stability finally returned to the housing and mortgage markets by the late 1990s.

Our current crisis was a product of the new century, a fairly conventional speculative bubble involving legislators, regulators, lenders, great financial houses, and borrowers in roughly equal culpability. Under the [false] mantra that “housing prices in America have never gone down,” already modest eligibility standards for taking out a mortgage were essentially scrapped. Risk was “shared” – read “hidden” – by the relatively new process of bundling mortgages for resale to investors. As housing prices soared, the rush to get into the game produced all the usual assurances from the financial talking heads, until the inevitable collapse.

So, what would George Bailey now do? First of all, I think he would want to examine the sociology of the crisis. How many of the imperiled homeowners are actually young families with children? These he would want to help. How many are singletons who used this speculative opportunity to jump onto the housing escalator? How many are empty-nesters who rode the bubble to move into a McMansion? How many are would-be “investors” looking for quick turnarounds in a rising market? He would have little sympathy for these latter categories, I suspect.

To help threatened families with children, George Bailey would support private and public efforts which put them first in line for access to renegotiated and publicly guaranteed mortgages. “Households with dependent children” would serve as the defining criteria. He would also probably agree with guidelines offered in 2008 by the Heritage Foundation, including:

    • All government-assisted refinancing should go only to homeowners who use that home as their primary residence.


    • No help should be given to investors, speculators, owners of vacation homes, homebuilders, realtors, mortgage brokers, or bankers.


  • Help should also be denied to anyone who lied or made misrepresentations on their original mortgage applications.

Over the long haul, I suspect, George Bailey would also try to return the housing and mortgage industries to their real purpose: providing homes to new families. He would favor a restoration of the pre-1980 distinctions between the “thrifts” and the banks, at both the Utah and federal levels. He would support limiting tax deductions on home mortgage interest to one principal residence per family. He would favor a cap on the amount that could be deducted, so that only good shelter – not princely luxury – enjoyed favored tax treatment. And more broadly, he would redistribute state and federal tax benefits to favor larger families.

As his father had noted, “These families have children.” That, I believe, would be George Bailey’s touchstone for reform.

The author, Dr. Allan C. Carlson, is director of Sutherland Institute’s Center for Community and Economy, president of The Howard Center for Family, Religion & Society, and distinguished visiting professor at Hillsdale College in Michigan. Dr. Carlson founded the World Congress of Families in 1997. He has written for numerous publications including the Wall Street Journal, National Review, and Intercollegiate Review, and is the editor of The Family in America. He is the author of nine books, including The Natural Family: A Manifesto (Spence, 2007), which he co-authored with Paul T. Mero. 

* George Sternlieb and James W. Hughes, America’s Housing: Prospects and Problems (New Brunswick, NJ: Center for Urban Policy Research, Rutgers University, 1980).


2. The Economics of Nuclear Power in Utah

Earlier this week, Sutherland hosted the last of three forums on nuclear energy in Utah. In this session, we discussed the economics of nuclear power generation in general and also as the topic relates to the proposed nuclear power plant near Green River, Utah.

Sutherland President Paul Mero interviewed three experts on the topic: Cheri D. Collins, Michael T. Hogue, and Edward Kee. If you missed the live webcast, you can view the video here or read the highlights on the Sutherland Daily blog post here.


3. Faith, Family and Free Markets: Fertile Ground for Happiness

By Matthew Piccolo

America’s founders believed that God endowed us with “certain unalienable rights, that among these are life, liberty and the pursuit of happiness” and “that to secure these rights, governments are instituted among men.”

Let’s focus on the third unalienable right in that list: the pursuit of happiness. What is “happiness” and what can government do to protect our pursuit of it?
Certainly, each individual defines “happiness” a little differently, but research shows that some specific things tend to be a source of happiness for most people. …

To read the rest of this post on the Sutherland Daily blog, click here.