In praise of the bursting housing bubble

High housing prices are A Bad Thing. Let ’em fall, say I.

It’s conventional to wring one’s hands about the deflation of the housing-market bubble. Kevin Drum refers to himself and the others who predicted a steep slide as “pessimists,” and caps a discussion of predictions of a 20-25% slide in SoCal housing prices from their peak with “This is really not going to be pretty.”

Surely, it would have been better had the bubble never inflated in the first place, and clearly lots of people are going to be hurt: by losing their homes to foreclosure, by not losing their homes to foreclosure but taking a big financial hit to hold on to them, by losing their housing-related jobs, and, if the housing crash and the credit crunch trigger a recession, by losing their non-housing-related jobs. I don’t want to minimize that suffering, and it’s rather shocking how little is being done in Washington to limit it.

But I submit that the collapse of inflated housing prices is, on balance, overwhelmingly A Good Thing. Right now, the high price of housing is the worst thing about living in LA: worse than traffic, worse than air pollution, worse than the Getty and the LA County Museum of Second-Rate Art, even (maybe) worse than the LA Mummified School District. UCLA is not stingy with salaries, by university standards, and the pension system is insanely generous, but my department lost a first-rate scholar to a university that isn’t nearly as good simply because at the same salary that left him on the fringes of the LA housing market he could afford a four-bedroom house in a good school district near his new employer.

If prices on the Westside of LA fall 30% from their peaks, they’d still be above the house-price-to-income ratio that prevailed from 1970-2000, and housing in LA wasn’t cheap then. High housing prices are the enemy of all things good and noble; I only wish I thought we’d seen the last of them.

Author: Mark Kleiman

Professor of Public Policy at the NYU Marron Institute for Urban Management and editor of the Journal of Drug Policy Analysis. Teaches about the methods of policy analysis about drug abuse control and crime control policy, working out the implications of two principles: that swift and certain sanctions don't have to be severe to be effective, and that well-designed threats usually don't have to be carried out. Books: Drugs and Drug Policy: What Everyone Needs to Know (with Jonathan Caulkins and Angela Hawken) When Brute Force Fails: How to Have Less Crime and Less Punishment (Princeton, 2009; named one of the "books of the year" by The Economist Against Excess: Drug Policy for Results (Basic, 1993) Marijuana: Costs of Abuse, Costs of Control (Greenwood, 1989) UCLA Homepage Curriculum Vitae Contact: