Michael Perrone, PsyD

GOV: We have a housing crisis. Prices are too high. ME: I agree. Supply is too low. GOV: So we have a plan. We’re going to subsidize demand. ME: …What does that mean? GOV: We’re going to give people money to buy houses. ME: But there aren't enough houses. GOV: Right. So we’ll help them bid harder. ME: If you have 10 people fighting for 1 house, and you give them all cash... the price just goes up. GOV: Then we’ll give them more cash. ME: That’s not a solution. That’s inflation. GOV: It’s "First Time Homebuyer Assistance." ME: Okay, let’s back up. Why are houses so expensive in the first place? GOV: Because we made them the perfect investment vehicle. ME: How? GOV: First, the 30-year fixed mortgage. ME: That’s standard, right? GOV: Only in America. In other countries, rates float. Here, you can lock in a low rate for three decades. ME: Why would a bank take that risk? If inflation goes up, they lose money. GOV: Banks don’t take the risk. They sell the loan to us. ME: To the government? GOV: To Fannie Mae and Freddie Mac. We guarantee the liquidity. ME: So the taxpayer subsidizes the risk so I can have cheap leverage? GOV: Correct. ME: And then I get to deduct the interest? GOV: Only on the first $750,000 of debt. ME: That seems... high. GOV: It used to be a million. We trimmed it. ME: But wait. If I rent, can I deduct my rent? GOV: No. ME: If I buy a small business, can I deduct the interest on the loan? GOV: It’s complicated. ME: But if I buy a giant house, I definitely can? GOV: Absolutely. We wrote it into the tax code. ME: So you’re paying me to borrow money to buy a bigger house than I need. GOV: We’re "incentivizing ownership." ME: What happens when I sell? GOV: The Capital Gains Exclusion! ME: How does that work? GOV: If you sell a stock for a $500,000 profit, you pay taxes. ME: Roughly 20%. GOV: If you sell your house for a $500,000 profit? ME: What do I pay? GOV: Zero. ME: Zero tax? GOV: As long as you lived there for two years. ME: So housing is the only asset class where I get subsidized 30-year leverage and tax-free profits? GOV: Pretty sweet deal, right? ME: So you turned shelter into a speculative financial asset. GOV: We call it "Generational Wealth." ME: Okay, so demand is juiced to the moon. Can we at least build more supply to bring prices down? GOV: Oh, absolutely not. ME: Why? GOV: Zoning. ME: I own land. Can I build a duplex? GOV: Illegal. Single-family only. ME: Can I build a granny flat? GOV: Only if you provide two parking spots and pass a shadow study. ME: So you made it illegal to build cheaper housing? GOV: We protect "Neighborhood Character." ME: But you spend billions on roads and utilities for the suburbs. GOV: Infrastructure investment. ME: So you subsidize the expensive sprawl, but ban the cheap density? GOV: Now you’re getting it. ME: This system seems designed to keep prices high. GOV: It is. ME: But you started this conversation by saying we have an "Affordability Crisis." GOV: We do. Prices are too high! ME: So we should lower them? GOV: No! We can’t lower prices. ME: Why not? GOV: Because then the voters lose their "Generational Wealth." ME: So we need high prices for the voters... and low prices for the buyers? GOV: Exactly. ME: That’s a paradox. GOV: It’s politics. ME: So what is your actual plan? GOV: We’re going to give first-time buyers $25,000. ME: Okay. I’m a seller. I list my house for $400,000. GOV: Uh huh. ME: I know every buyer just got a free $25,000 from the government. GOV: Right. ME: What do I do? GOV: You... keep the price the same? ME: I raise the price to $425,000. GOV: You wouldn't. ME: I absolutely would. The buyer can afford it now. GOV: But that just transfers the subsidy from the poor buyer to the rich seller! ME: Econ 101. GOV: We don’t think that will happen. ME: Just like you didn’t think $7,500 EV credits would make Ford raise the price of the F-150 Lightning by exactly $7,500? GOV: That was a coincidence. ME: You are trapping us in a box. GOV: It’s not a box. ME: What is it? GOV: It’s a Single Family Home with a 2.5% mortgage rate that you can never afford to sell. ME: ... GOV: Welcome to the American Dream.