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Let's Cut the Ammunition to the Housing Arms Race Permanently

Richard H. Serlin, University Of Arizona

Abstract

The largest roots of today's epidemic of financial distress are the great increase in economic risk over the last generation and the great increase in the percentage of individual and family budgets spent on large fixed expenses, what Harvard bankruptcy expert Elizabeth Warren calls "Must-Haves". This is primarily due to a housing bidding war that has taken place since 1970. I discuss the key reasons for this destructive bidding war, one of which is the great relaxation of legal interest rate restrictions. This has allowed families to borrow far greater amounts relative to their income than they could have a generation ago. I propose restoring interest rate ceilings as a way to decrease the money families can bring to the bidding war for homes in the most desirable neighborhoods. With all families restricted in the same way, none would lose their relative position, but all would pay much less for housing, helping greatly to restore security to family finances.

Suggested Citation

Richard H. Serlin. 2008. "Let's Cut the Ammunition to the Housing Arms Race Permanently" The SelectedWorks of Richard H. Serlin
Available at: http://works.bepress.com/richard_serlin/14

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