by Tyler Cowen
on December 19, 2008 at 1:01 pm
1. The Panic of 1873
2. Changes in tax law made the housing bubble worse
3. The Fed’s balance sheet
4. Via Kottke, top astronomy photos
Why wouldn’t removing a tax on home sales cause downward pressure on prices? Maybe this is too simplistic, but removing a tax on a simple supply/demand would increase sales but decrease prices…
I second the reccomendation for the link re: panic of 1873. That was one rough panic and you can’t blame government intervention on its depth or length.
I think you missed something in the article.
The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.
It sounds rather eerily like ol’Fannie and Freddie.
bbartlog: “But so long as these things are ‘working as intended’ while the system of capital allocation is most definitely not working as intended”
But the claim is that these tax laws (and others) were part of what made the system of capital investment _not_ work as intended. They encourage people to invest in non-productive assets (houses) beyond the benefit these produce (rents).
Yes a lack of cheap labour would also have constricted the housing boom somewhat, but cheap labour might have been better employed had people been investing in stocks not houses.
I didn’t know about this particular law, thanks for pointing it out.
The link about 1873 was very interesting, why haven’t I heard about this? Everyone’s so fixated on 1929.
Anyone have any good links about how deep it was? The article mentions 25% unemployment in NY, but some other numbers to grasp onto would be nice. Esp. for Europe.
Strange, now that I think about it, that there is no mention of the war of 1870-71, nor the Paris Commune and all that. Was there just two years of building boom? Or did Vienna get started earlier and Paris was late to the party? And did Britain’s shift of wheat imports have anything to do with the war?
A while back, Barry Ritholtz posted an interesting article about the Panic of 1873 and the following years that Roger Babson published in the New York Times in 1911:
Babson’s observations about the availability of credit and other aspects of the panic sound familiar.
“Changes in tax law made the housing bubble worse”
Gee, ya think? subsidized interest, 0% down, deduct interest from your income, cap gains are tax free
is there anything else that could possibly been done to distort investment in housing? Maybe we should have piad people to get mortgages too.
someone should calculate the total actual value of the subsidies for housing. All to make housing more affordable, but of course increases demand and what people are willing to pay for a house.
So prices go up making housing less affordable.
Such is the way with all government subsidies. Those holding the asset when the subsidy is put in place benefit, but its a wash for everybody else.
The deceptive part is what this does to the speed with which prices rise, convincing new unsophisticated entrants that this investment opportunity will continue indefinitely.
thanks for the 1873 link tyler. interesting article. especially the “american commercial invasion”.
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