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The White House passed a bailout that will very soon distort the housing market


The White House has announced that it will be making $45 billion in federal funds available to help convert vacant office buildings into affordable housing. This is part of a broader effort to address the nation's housing shortage and to help revitalize urban areas that have been struggling with the rise of remote work.

The funds will be made available through a variety of programs, including the Transportation Infrastructure Finance and Innovation Act (TIFIA) and the Railroad Rehabilitation and Improvement Financing (RRIF) program. These programs are designed to provide low-cost loans and other forms of financial assistance to developers who are converting office buildings into residential units.

The White House has also announced that it will be providing technical assistance to developers who are interested in converting office buildings into housing. This assistance will include help with planning, design, and financing.

The Biden administration has said that it hopes to convert at least 100,000 office units into affordable housing units over the next five years. While government intervention in the housing market might be well-intentioned, it can have unintended consequences, leading to further distortions and ultimately exacerbating the problems it sought to solve.

The first problem is that this initiative aims at creating an artificial demand in the housing market. Government programs aimed at making housing more affordable can inject more demand into the market, pushing prices up further. This can be detrimental for those without government assistance who are now competing with a larger pool of buyers for a limited supply of housing.

The second problem is that these government programs guaranteeing low-cost loans could create a housing bubble. This is because these programs guarantee loans for those who might not qualify otherwise. While this opens doors for some, it can also inflate demand and risk, potentially leading to another housing bubble.

The third problem is that this initiative will create a misallocation of resources. Indeed, by artificially influencing affordability and availability, it can lead to a mismatch between the types of housing being built and the actual needs of the population. This distorts the natural flow of the market and can lead to inefficiencies and sub-optimal outcomes. This is exactly what happened in the Chinese real estate market.

The fourth and last major problem is that this initiative will create a moral hazard. Guarantees and bailouts can create a moral hazard, where both lenders and borrowers take on greater risks, knowing they are ultimately protected from the full consequences of their actions. This can lead to irresponsible lending and unsustainable housing market conditions.

Every time the government attempts to interfere in the economy, it exacerbates the situation by creating winners and losers. The losers are generally those whose implemented policies were supposed to help. Markets are better-off when left alone because they regulate themselves.

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