As the Congress comes closer to passing legislation to help homeowners facing foreclosure, it is worth taking a look at the opposition to federal foreclosure aid.
Of course, there are those who strictly oppose nearly all forms of government intervention in the economy. Congressman and presidential candidate Ron Paul and his free market libertarian supporters would be among this group.
Then are those who are opposed to market interventions in general, but will support some government interventions when the stability of the market is at stake. Most Republicans fit into this group — including Federal Reserve Chairman Ben S. Bernanke.
That’s why it was significant that it was Bernanke who last week made the most convincing argument from a free market perspective for federal aid to homeowners facing foreclosure.
As we noted in an earlier post, Bernanke told an audience at the Columbia Business School that the foreclosure crisis posed the clear and present danger of wreaking economic havoc far beyond the housing market. “High rates of delinquency and foreclosure,” Bernanke said, “can have substantial spillover effects on the housing market, the financial markets, and the broader economy.”
What is at stake, according to Bernanke, is not merely the homes and financial well-being of hundreds of thousands of borrowers, but “the stability of the financial system.” In this extreme circumstance, even staunch free market advocates, such as Bernanke himself, recognize the need for the government to intervene in the market.
We think, then, that the overwhelming vote in the House of Representives in favor of government intervention to stop the rising tide of foreclosures — legislation that now has the support of many free market Republicans — was rooted at least as much in the economic reality of averting catastrophe as the political expediency of government largess in an election year.
Who then is still opposed to foreclosure aid?
The answer is the apartment owners.
Behind any legislative process is a power struggle of conflicting interests, and very often these interests are economic. In the case of foreclosure aid, there this now a growing consensus that the foreclosure crisis threatens not merely the borrowers and the lenders, but the economy as a whole and hence the economic interests of almost every sector of the economy.
Except apartment owners.
The National Multi-Housing Council (NMHC) and the National Apartment Association (NAA) have consistently argued that the blame for the foreclosure crisis is what they have called the “misguided” national policy of “home ownership at any cost” and that “People were enticed into houses they could not afford and the rarely spoken truth that there is such a thing as too much homeownership was forgotten.”
The fact is that in sharp contrast to other sectors of the real estate market, the apartment industry has not suffered as a result of the current housing crisis. Rather, as we’ve noted before, the real estate crisis is forcing the lower end of the single-family housing market back into multi-family rental apartments. People have to live somewhere — if they can’t afford to live in a house that they own, they will be forced to live in a house that someone else owns, such as multi-family apartment units. As homeowners suffer, apartment owners benefit.
The apartment industry has some very powerful supporters in Congress, including Senator Richard C. Shelby of Alabama, the ranking Republican on the Senate Banking Committee. Senator Shelby, who has opposed federal intervention to stop foreclosures, has made millions as a landlord and is the owner of a 124-unit apartment complex in Tuscaloosa called the Yorktown Commons.
“I want the market to work if it can, and most of the time it will, but not without some pain,” Senator Shelby has said.
This time, the pain appears to be too great, too wide-spread, and too dangerous, for most other members of Congress, as well as most important players in the economy, to allow it to continue unabated.
Indeed, Shelby has already signaled that he would support a version of the legislation — and that the White House would sign the bill into law.
“I think if we reach a compromise,” Shelby said, “it would be acceptable to the White House because, as a Republican and former chairman of the committee, I’m going to do everything I can, work with the administration, to make sure that the program works for those it’s intended to do and make sure we can afford it as a nation.”
In this crisis, even Senator Shelby has other, larger, and more important economic interests at stake than helping the apartment industry.