The Benefits of a Bust

One more thing on my last post. Someone pointed out to me that Larry Littlefield at Room 8 recently raised the possibility that changing the 421a program might result in a residential real estate glut. But Littlefield thinks it should be an intended consequence. He writes:

There is a lot of stupid money out there. Shouldn’t we get some to subsidize our housing, rather than using tax dollars?

Littlefield’s proposal? Extend the program for one year, and then cut it off completely. Then:

A huge wave of new units, even huger than that already in the pipeline, would come on the market — perhaps in a recession. Supply would exceed demand, and rents and sales prices would drop. Investors would lose, but you pay your money and take your chances. That’s how Texas is so affordable.

I’m not so sure that creating a Houston-style real estate bust is exactly what Bloomberg had in mind when he proposed this, but I guess it’s an idea.

Andrew Rice