Introduction
Housing as an issue has plagued communities in the United States of America (United States or US) for many years. It has been a rich source of societal conflict. A lot of policy decisions have been formulated over the years with the intention of solving this problem. The United States financial crisis has been linked by a number of authors to the housing policy of the United States. This financial crisis affected the global economy and has thus become the target of numerous analysis and speculation. This essay will attempt to answer the question of whether the financial crisis was caused by the housing policies and guidelines that sought to regulate home ownership in the United States. It is generally understood that policy formulations and policy decisions are meant to serve the public interest. Some however allege that they are the results of factors such as power struggles between opposing political and social factions. The housing policies that are seen to have caused the financial crisis have been face with calls for more regulation by some. Other groups and persons have called for deregulation and less government intervention. (Jones, 165)
Body
United States housing policy differs from one region to another and is influenced by both historical and contemporary factors. In the recent past there have been attempts to devolve housing policy to community based organizations. This move has aimed to increase public participation in the formulation of housing policy as well as limit the amount of housing resources that flow due to political patronage. There has been a desire to involve the communities in the making of these decisions. This has been done with the goal of reducing avenues for friction in future. Increased public participation has also led to the continual introduction of policies that seek to provide affordable housing for low income households. Some sides advocate for more government regulation while others argue for less government intervention. Those who ask for less regulation argue that market forces should play themselves out. They compare government intervention to communism hence rekindling old national sentiments. Despite numerous measures that have been taken throughout the US, the housing problem has continued to exist and has expanded to include both low and middle income households. One effect of mediation with communities has been the introduction of “Inclusionary Zoning (IZ)”. (Jones, 185) This law basically requires housing authorities to make provisions for low income housing whenever they develop housing units. This policy has caused a degree of change. Its effect is however negated in some communities wherever those low income housing units are located near residential sections that are generally considered to be of low economic value. The argument for IZ was that low income households were being removed from residential areas that enjoyed a variety of social services. These services included access to amenities such as libraries, schools, hospitals and playgrounds. Such amenities were seen as aiding in the improvement of the quality of life. Protests by low income communities such as African-Americans led to the formation of avenues where people could talk of their ills and reason out a convenient way to address them. (Foldvary, 58) Housing was found to be a major concern of the public because of several reasons. An important reason for this was the fact that the largest portion of the income of persons in the US was singly devoted to housing needs. On average, a quarter of derived income is spent on household needs such as rent, mortgage fees or the cost of purchase of a home. It is thus apparent that an ease in the burden of acquiring adequate housing will improve the affordability of other basic and secondary needs. There were other effects of housing that caused this degree of interest in it. Home owners were found to be more politically active than those who did not own homes. They also had better standards of living due to easy access to important facilities. The community based non-profits that now have the power to implement housing policy have faced a number of problems in their operations. They have been accused of ceding to the whims of more powerful organizations and groupings. These organizations have largely been responsible for stricter control of housing in low income areas. The many authorities and policies formed were however unable to stop the unwarranted appreciation of property prices that ultimately led to the burst of the housing bubble. (Foldvary, 145)
United States housing policy provides for the federal government to create crucial policies that provide subsidies to housing consumers. Other policies concerning housing such as occupancy, the regulation of house building and service provision are determined by local governments. The financial crisis of 2007 to 2010 was triggered by a shortfall of liquidity in the United States financial system. The immediate effects were the collapse of large financial institutions, the bailout of large corporations and downturns in a number of stock markets located in diverse countries of the world. There have been attempts to trace the shortfall of liquidity to the bursting of the housing bubble. Property prices in the US had for years accelerated without any reasonable justification. The value of properties was pegged on air since there was no justification for the rapidly increasing home prices. (Warren & Tyagi, 114) Mortgages and loans were taken based on the valuation of these homes which had been massively overpriced. With time the market adjusted to allocate these households their appropriate value. Property prices thus dropped drastically. This is referred to as the ‘bubble burst’. As a result, home consumers found themselves to be servicing mortgages that were larger than the value of the homes they were purchasing. Refinancing also became difficult to acquire since the homes had originally been overpriced. It became hard for people to acquire financial services such as loans since their homes could not provide sufficient security due to their rapidly declining prices. This resulted in a large number of foreclosures. Many households filed for bankruptcy to shield themselves from further economic damage. Homes are one of society’s basic assets. They are used throughout the US as security for loans. When property prices started to drop there was an unprecedented shortage of liquidity since banks had given out large amounts of money with overvalued homes as security. This created a financial crisis for these institutions when they realized that their security was worth a huge percentage less of the value they had been assigned. (Warren & Tyagi, 114) Fannie Mae had been created after the Great Depression to provide liquidity for financial institutions that provided home ownership and home financing services. When the financial crisis struck it was allowed to fund homeowners and strengthen the home ownership market. It was given unrestricted access to resources and this elicited sharp criticism. The Treasury Department, under which Fanny Mae operates, was accused of exceeding its powers and assuming those reserved for the US Senate. IZ programs differ from state to state and region to region and are known to have an effect on property prices among other issues. Their structure has been seen to vary from one region to another. This has hampered attempts to measure the effectiveness of Inclusionary Zoning. IZ has however been found to be favorable among many communities due to its ability to adapt to local circumstances. The formulation of IZ includes dialogue with the surrounding communities through various forms of democratic representation. This allows for formulation of appropriate policies that ensure the needs of the surrounding communities are catered for.
These discussions allow for integrative debate where both sides of a question are pondered and the answers evaluated with sincerity. The goal is to ensure that the best possible decision is arrived at. Since home ownership is a major source of modern societal conflict, it is naturally assumed that the initiation of deliberative democracy at the grassroots will limit the room for conflict to emerge in future. Deliberative democracy looks at the possible consequences of actions and decisions before they are implemented. The result is thus as much a part of the process as the decision itself. (Putland, 57) It involves careful and constant analysis of the actual and likely impacts of the created policies.
The US government has for many years been trying to make affordable housing available to for its poorest citizens. This problem has however expanded to include both the working class and the middle class. The housing policy can be directly linked to the financial crisis since the decline in home prices subsequently led to a rise in liquidity. Industry was apparently unable to regulate house prices when they stated increasing without justification. Banks offered loans on overpriced homes without verifying the true value of the properties involved. The prices of homes were no longer controlled by the forces of demand and supply but by other unseen forces. The central government overlooked these market abnormalities. It was not until the bursting of the housing bubble that the central government truly started to respond to the bad market practices. By then, the effects would not be washed off easily. Late government efforts to avert the crisis did not achieve much immediately and their impact is yet to be established. A number of factors have ensured that the problem of housing not only resists disappearance but also expands to include social classes that were not subject to these problems. (Putland, 18)
Larger and denser communities are usually more prone to the adoption of growth control policies, more frequent community involvement in land allocation, amend their land use regulations more often and have more public or affordable housing. The rate of population growth will also determine the nature of their growth control policies as well as the revenues from impact fees. A community’s economic status will determine its policies. High income regions have stricter development controls whereas low income areas will encourage the construction of public housing facilities. Local authorities have the ability to play a great role in the regulation of housing. They can create and implement effective and creative land use zoning and planning techniques. These can be adjusted to suit the prevailing economic conditions. County and state assemblies can provide a good opportunity for deliberative democracy whereby the residents will decide the housing policies that suit their community. Local governments are well-placed to respond to the community-based housing needs because of their ability to take part in community planning and to enacts land use controls such as zoning so that they can accomplish these community-based plans. Vibrant land use regulatory techniques can be used to promote affordable housing while sparing municipalities from direct expenses. (Jones, 16)
Conclusion
Due to the fact that government policy has over the years failed to solve the problem of inadequate affordable housing, one must be careful before implementing any decision concerning this crucial sector. Federal government is relatively ill-equipped to handle the varying national housing challenges. It also cannot adequately implement and effect zoning and such policies due to the local nature of these matters. Many communities have their own needs and it is better if they are left to implement them at the appropriate levels of government. (Warren & Tyagi, 114) Despite the many arguments against government regulation of housing it is obvious that the housing market can cause a lot of damage to the economy if it is left unmonitored. Regulation must be discreet and speculation must be discouraged. Federal government policy should seek to cover subsidies while in conjunction with citizens and state authorities. The federal government should only formulate general housing policy while leaving more specific aspects to localized governments. Housing is a public issue since it affects most other sectors of the economy. It is the government’s duty to ensure that all its citizens have adequate housing that is both affordable and accessible. Citizens with better access to housing will exhibit higher political participation. They are also more likely to spend on other important items as well as invest. This will have a great impact on the economy and will undoubtedly spur growth. (Putland, 194)
Works Cited
Jones, Pawson. Best value, cost-effectiveness and local housing policies. Policy Studies. (2009)
Putland, G.R. “From the subprime to the terrigenous: Recession begins at home”. New York: Land Values Research Group. (2009)
Foldvary, Fred E. The Depression of 2008, Berkeley: The Gutenberg Press. (2007)
Warren, Elizabeth & Tyagi, Amelia Warren. The Two-Income Trap: Why Middle Class Mothers and Fathers are Going Broke, New York: Basic Books. (2003)