In a recent interview with Bill Maher, Nancy Pelosi discussed a recently proposed California law—Assembly Bill 1840—that aimed to provide taxpayer funds to first-time homebuyers regardless of immigration status. In defense of the proposed law, which was ultimately vetoed by California Governor Gavin Newsom, Pelosi stated that she wanted to help illegal immigrants achieve the “American Dream.”
Setting aside the insanity of compelling California taxpayers to fund home loans for illegal immigrants, homeownership is not the American Dream. Politicians propagate this myth, with the help of their crony partners in the banking and housing industries, because it gives government a handy excuse to further entrench itself in a $40 trillion industry, always accruing more power in the process.
How the Feds Took Over Housing
The history of government meddling in housing comprises ill-advised but ever-growing interventions. As each intervention built on those that preceded it, the influence of the federal government grew.
After World War I, so-called “housing shortages” compelled Congress to liberalize home mortgage credit. The Great Depression focused lawmakers on spurring homebuilding as a cure for the economy. The period following World War II brought the GI Bill, as housing for veterans became the focus. The high-spending, inflationary period of the 1970s saw the creation of Freddie Mac, the second government agency—after the creation of its twin, Fannie Mae, in the 1930s—to provide general liquidity to the mortgage market by buying mortgages. The 1990s and early 21st century saw tremendous pressure applied to banks by the Clinton and Bush Jr. regimes to increase mortgage lending to the subprime market (i.e., those with poor credit), while ZIRP policies under the last three administrations (Obama, Trump, and Biden) were designed, in no small part, to boost demand for housing.
As government involvement in housing accumulated, an increasingly large number of people—most of them voters—fell under the purview of the corresponding policies. Thus, continued intervention was given political justification. Housing bubbles became a political imperative while stagnation, or mere slowdowns, in the market became a political liability.
Today, the government’s grasp on housing is near-absolute. Through its various agencies—most notably Fannie Mae, Freddie Mac, the FHA, and the VA—it guarantees over 90 percent of single-family home mortgages.
What Hath Intervention Wrought?
While long-term housing objectives have been discussed by various government committees since the 1930s, shifting short-run political aims have often been at cross purposes. Nevertheless, any political goal-seeking necessarily involved making homes more affordable. Unsurprisingly, the federal government’s record on that score includes decades of failure.
From 1940—an approximate start date for earnest government intervention in the housing market—to today, nominal home prices have increased by nearly 15,000 percent, from $2,938 to $426,900. The average home price in 1940 was 2.1x the average salary. Today, it is 7.1x the average salary. In “inflation-adjusted” terms, homes are four times more expensive today than they were in 1940, indicating that home prices have risen far faster than the “general price level.”
For those who would point to larger home sizes as a driver of higher prices, note that the inflation-adjusted trend is not materially affected when taking size into account. Furthermore, larger home sizes themselves are a result of loose monetary policy vis-à-vis housing.
Notably, home prices have risen fastest during periods of enthusiastic government intervention. In the 1940s, when government control of the housing market essentially began, home prices increased at an annual rate of 10 percent. During the 1970s, a period of substantially loose monetary policy and excessive spending, the annual rate of increase was 11 percent. From 2000-2007, the subprime housing bubble occurred alongside annual price increases of 12 percent for the period. More recently—in the wake of the Covid-panic, money-printing, and ZIRP binge of 2020—home prices increased at an annual rate of 14% from 2020 through 2022.
Life, Liberty, and a 30-Year Fixed Mortgage?
It’s clear that equating homeownership with the “American Dream” is a supremely effective political tool. It has allowed government to fully enmesh itself in a $40 trillion market and position itself as a “partner” in well-being for tens of millions of Americans—all while making housing more expensive, more time-consuming, and of shoddier quality, all else equal.
In light of the facts, the American Dream being sold by politicians is a dangerous myth. Dangerous because it presupposes the involvement of government in pursuit of a collective goal—widespread homeownership facilitated by the state—while fostering a debt-driven mentality and diminishing the individual drive to produce and acquire resources through voluntary interaction.
The true American Dream, such as it was, was one of individualism in the absence of government thuggery, of individuals pursuing their own personal ideals based on their particular life trajectories rather than a collective social enterprise, to paraphrase John Archer.
Far from its stated goals, government facilitation of homebuying has instead come to serve its real goals—increased influence over the American economy and, consequently, greater political power. All this to the detriment, and at the expense, of the average American.
