In last night’s debate John McCain said that if he were elected, he would have the Treasury renegotiate mortgages that were bought in the TARP program. That might sound good, but it also shows just how little McCain understands about what the government will be buying with the TARP. The chances that the TARP actually ends up owning individual mortgages is slim. The TARP is intended to purchase mortgage backed securities but that is an entirely different animal than an individual mortgage. We simply don’t have time to deconstruct those securities and extract individual mortgages. Maybe McCain was talking about some other program but if so, I’m not aware of it.
Everybody, it seems, has an idea about how to stop the decline in housing prices. Some have suggested that the government should just buy the excess homes and hold that inventory. Others have suggested buying them and destroying them. The idea behind the TARP is that if the banks can get rid of their current mortgage exposure they can then go out and lend again. That is dubious but also doesn’t address the problem of oversupply. What the market needs is more buyers; builders have already cut back so much that any surge in demand would solve the problem relatively quickly. So how do we increase the demand for houses?
Lee Ohanian has an Op-Ed in the WSJ today that contains the answer if you can get past the first wonky part of the article. The first portion is about economic policy and Ohanian points out that the economy is not nearly as bad as people fear and that good policy can turn things around. I agree with that although the scaremongering out of Washington over the last month has done severe damage. I don’t think anyone knows yet the fallout from the panic exhibited by our “leaders”.
Here’s the interesting idea at the end of the article:
What should be done? We should encourage the immigration of prime-age individuals. Beginning in 2007, net immigration fell to half of its level over the previous five years. Increasing immigration would increase the demand for housing and raise home prices. And note that the benefit would be immediate. Home prices — and the value of subprime obligations — would rise in anticipation of a higher population base. The U.S. particularly needs highly skilled workers. These workers not only would purchase homes, but would generate higher living standards for all Americans.
That is, by far, the best idea I’ve seen about how to soak up the excess inventory of unsold homes. We have empty homes so the logical conclusion is that we need people to fill them. We import damn near everything else, why not people? And Ohanian is not talking about luring in uneducated, unskilled workers; he’s talking about luring people with skills. Attracting engineers and other skilled immigrants would benefit the economy over the long term and help solve the housing crisis. What more could you ask for?
Cross posted at Joe’s Brain Depot