Is it time for radical economic concepts?

More than one-third of existing USA home sales in 2009 were short sales or foreclosures. In March of 2010 the median existing home price was 26% lower than in October 2005, without factoring in any inflation. What’s the root cause? For starters, check out incomes. That’s what pays the mortgage.

In 2008 median household income in the USA was $49,800; in 2000 it was $52,400, marking a five per cent decline. Multiplied by 99% of all households (the top one per cent does not suffer here), you get a whale of a differential in spending power and mortgage coverage. Household wealth, which includes that top one per cent, slid from $503,500 to $486,600 during the last decade. For most, wealth largely means the house.

In 2009 the states paid $79.6 billion in unemployment benefits. Small wonder that deficits are the sign of the times. Yet employers for the most part are awash in cash. As the Denver Post related on Father’s Day, corporate leaders are doing just fine, thank you.

In 2007 (latest available) data say that immigrants made up 35% of first-time home buyers. Their share of repeat home purchases was 20%. Perhaps we as a nation of immigrants might wish to reconsider the intolerance implicit in measures such as Arizona’s little hissy fit.

Perhaps we should also consider what to DO about unemployment, since the housing bust is unlikely to improve without a meaningful change in this metric. A couple of ideas come to mind.

First, the USA could offer private employers a ten per cent tax holiday for the year, provided they increase their work force by ten per cent throughout the twelve-month period. Somebody’s got to start hiring soon, or nobody’s going to buy anything. Waiting for the next guy to add workers is like participating in a firing squad that stands in a circle.

Better yet, Congress could decree that no CEO gets a raise until and unless he hires some people. Add twenty per cent to the payroll, you can get a twenty per cent pay hike.

Finally, the housing mess may need a long-term jolt. Perhaps the feds might buy back land a lot at a time–the land under homes threatened by their owners’ inability to pay the mortgage. The USA once owned all the land, except for that claimed by natives; why not take some of it back again? Every homeowner who qualifies would immediately execute a ground lease for the term of the mortgage, however it is removed or paid off. I wonder how many lenders would refuse to approve, especially when Uncle Sam’s check goes straight to them. Land values are typically five to twenty per cent of a home’s value. For condos, a proportionate interest in underlying tracts would be re-acquired by the USA.

Pay for it with a federal tax on all land transfers. In this way those who wish to add housing can support what’s already here.

Go ahead; call these concepts radical. You got a better idea? Let’s hear it.

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