Who would have thought?

Our nation’s long experimentation with privatizing housing came to a screeching halt this past weekend when Treasury Secretary Henry Paulson — a Republican — put Fannie Mae and Freddie Mac under federal government ownership.

Who would have thought?

Our nation’s long experimentation with privatizing housing came to a screeching halt this past weekend when Treasury Secretary Henry Paulson — a Republican — put Fannie Mae and Freddie Mac under federal government ownership.

Paulson has not lost his mind. His response to Fannie and Freddie’s woes were his only choice under the circumstances. But the outcome creates a policy brain teaser and a formidable challenge for meeting our housing needs going forward.

Forty years ago Raymond Lapin, a California Democrat, began a long crusade to privatize the United States housing market when, as president of Fannie Mae, he converted the government agency into a private enterprise. Despite his good efforts, then-President Richard Nixon fired Lapin, but a Republican appointee carried on his inspiration.

Lapin understood that to house the growing U.S. population the government could not do the job alone. Private capital was essential.

The U.S. population has grown from 203 million in 1968 to 303 million today. The U.S. Census Bureau predicts that the population will add another 100 million in the next 40 years.

Private capital was and is essential to expanding the supply of housing and to giving ordinary citizens access to decent housing.

The privatization of real estate predates Lapin’s efforts, arguably dating back to the passage of the U.S. Constitution when the authors of the Declaration of Independence were likely inspired by English philosopher John Locke’s words about the importance of life, liberty and property in penning the phrase "life, liberty and the pursuit of happiness."

Then, private ownership — though confined to a few anxious property owners like Thomas Jefferson — was considered an admirable response to feudal land ownership and an idea that was considered democratic and essential to freedom. Soon after, private property rights were written into the Bill of Rights.

In the 19th century, the Federal Homestead Act dramatically promoted private ownership. The controversial law gave public lands to private citizens who were willing to stake a claim, build a house, improve the property and settle. The agenda then, as with most housing policy through history, had more than a single purpose — the larger mission at the time was to settle the West.

Depression-era programs such as FHA and allowing the deductibility of mortgage interest on income taxes were not public policies singularly focused on housing. They were intended to help lift the U.S. economy from the Depression. These steps were pushed through by a Democrat, President Franklin Roosevelt, and began a 50-year crusade to promote home ownership that gave rise to the modern real estate industry and wild boosterism behind the idea that everyone could and should own a home.

In modern times, President Reagan picked up the privatization mantra when he dismantled public housing programs in the 1980s. The move proved noble, but ineffective and costly. His larger strategy was to attack poverty programs, which his conservative boosters said smacked of socialism and created government dependency and blight on communities.

In the last 15 years, privatization and home ownership became the rallying cry of both Republicans and Democrats. The biggest growth rates in the mortgage-backed securities industry began under President Clinton.

Surrounding all of the government’s efforts was a necessary mission to house the exploding U.S. population. Just as we see in China today, the government did everything possible to meet the housing needs of the growing population.

Eleven million immigrants, a number much higher than forecasters predicted, came to the United States in the 1990s — meeting their housing needs became an overwhelming public policy challenge.

Bolstering home ownership and residential construction was identified as the solution.

But all through history, housing policy often mixed a dangerous blend of private interests and public agendas that created dubious rewards for taxpayers and substantial risk for the government.

It could even be argued that many of these efforts failed because residential construction rates in many areas did not keep up with demand and prices were inflated. To overcome the affordability gap, the last public policy failure was with the surge in subprime mortgages — a misguided response to affordability woes caused by the supply-demand imbalance.

Solutions to housing America were often mixed with greed and failed private and public programs. The private property clause in the Bills of Rights became an excuse for exploiting fragile lands. The Homestead Act gave a windfall to land barons who often committed fraud. Recently, Wall Street and the real estate industry used the subprime opportunity to generate excessive fees and put people into housing who could not afford it.

Now, the country faces an altogether new challenge. Many public and private programs have proven flawed. What is the proper combination of initiatives that serve the larger and compelling public purpose, attract private capital and do not let evil intentions in the door along the way?

Policy makers have never been more challenged.


What’s your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.

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