On the role of Local Government in the Housing Market

Intersting article here about a local suburb that is buying up foreclosed homes, and remodeling them for re-sale.

As a proud owner of a 1959 Rambler, I can vouch for the value and solidity of these homes. They are well built, and the structure and floor plan lend themselves to easy addition & expansion. We bought ours in 1995 right before our wedding. At first our plan was to live here for a few years to build equity, and then move up into something newer and bigger. But a funny thing happened. We started planting roots. We found a parish we felt at home in, and started making connections to our post-war inner ring suburb. As time passed we kept re-investing our savings into our home, updating it, making it into “our home”. We watched housing prices soar, the exurbs boom, and we become more and more content to stay here. It wasn’t big, but it was big enough. We kept asking ourselves “how much more do we really need?”. We talked of adding on when kids came, but when they did, we procrastinated. Around about my daughters 8th birthday it hit me, why bother adding on when they’ll be moving out in another 10 years?

In a way, we bought a home smaller than we thought we’d need, and over time grew into it. We’ve been here 14 years now, and it is Home (with the capital H). We’ve become part of the neighborhood now, and have watched it change around us. New families have moved in, as others have moved out. I worried that we’d see a lot of foreclosures in the neighborhood, but so far, so good. Our area seems to be small enough to have escaped the mortgage crisis.

Which brings me back to the article. I am heartened to see people placing value in older and smaller homes. Maybe its indicative of a new found appreciation for limits. But I am a bit concerned about whether or not this is the proper role for a local government to fulfill.

In his book a Humane Economy, Wilhelm Ropke makes the argument that government is a necessary precondition for a free market to function. Without structure, and laws, and the protection of property, laissez-faire is impossible.

I agree with his point, but I think I might even take it a step farther. I think in some sense that local government is a part of the market. This article hints at it. Local Government has a vested interest in maintaining the local economy. As a government by, of, and for the people it must support and encourage business that promote jobs for its citizens. It also has an interest in promoting and supporting the creation and sustainability of affordable housing. But does that mean it should also enter into the market by buying, remodeling and reselling homes? Is that a proper role for government, and a proper use of tax dollars?

I can see both sides. On the positive note, it is good to see a suburb take a pre-emptive initiative to maintain its housing stock. I know of many cities (Buffalo, Detroit, Minneapolis) that have seen some neighborhoods decay to a point where homes became vacant and unlivable. Ultimately these three cities stepped in to buy foreclosed properties just to bulldoze the homes so that they would cease to be eyesores, and havens for crime. I think a strong case can be made that improving the homes adds value into the community for the remaining residents that will provide a market incentive for them to stay.

On the other side I can sympathize with the argument that the local government is not justified to take the money raised from home owners through property tax, to buy and play in the housing market. That is not the function of government. Presumably, if there is a market for these homes a private developer will step in, buy them, remodel them and resell them. The government will be less efficient in doing so than the market, and may in fact lose significant money in the process as it is acting not out of a market driven demand for these houses, but out of a centralized plan. By interfering in the market prematurely, these homes may be fixed up, and sit vacant, or be sold at a lower price that drags down the value of surrounding homes, and ultimately has a negative effect on the local tax base.

So I am conflicted. It’s nice to see someone doing this. But should it be the local government? I would appreciate some comments and input.


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