The Housing Bailout-Spending When We Need To

While President Obama is set announce his $1.5 billion plan to aid the housing market, I’m getting set to hear Fox News, the Wall Street Journal, and even some Washington Post columnists blast this decision to spend more money when the deficit is so high. What is interesting is that they most likely will not take a look at the facts and will simply aim to appeal to those appalled by the spending deficit and current debt.

If the US ever wants a balanced budget someday, then aiding the housing market is just one thing that will have to be done in order for it to fully recover.

The proposal is to aid the housing markets in Florida, California, Nevada, Michigan, and Arizona, who have been some of the heaviest hit in the housing market industry (not to mention Michigan has an insanely high unemployment rate, so ability to buy houses is extremely low there) using the TARP program (Troubled Assets Relief Program).

In economics it is the long term that makes the most sense to invest in and that is what the Obama Administration is doing. By investing over $1 billion for the housing industry in those large markets, the administration is trying to kick start housing markets that are supposed to take a hit later in the year when interest rates are supposed to go up. Without such a kick start, it is likely the improving housing market will take a dive when those rates go up, throwing the market farther into a recession instead of improving.

The plan is to use the funds to help state housing finance agencies that would be asked to create locally customized solutions to the housing crisis. The many possible solutions range from keeping distressed borrowers out of foreclosure to broader relief efforts, such as “home-buying programs.”

If it works, and it will probably help just like the government bailouts have improved the unemployment rate, then the housing market should improve steadily; slowly, but steadily. This way the program will eventually be paid off through the taxes of those who will use the government programs to buy new houses or keep houses they already own. In such a way the program will come full-circle. It may take a while, but that is the point. It is suppose to be a long-term fix and short-term helper for the housing industry that needs all the help it can get.

So when those columns come out bashing the program for spending, think about how that spending will eventually be paid off and how it will improve the economy. Even though the federal deficit is high, the need to spend to improve the economy is even higher.

As a New York Times editorial pointed out a couple weeks ago, “At a time of high unemployment and fragile growth, the last thing the government should do is to slash spending. That will only drive the economy into deeper trouble.”

Spending does not always hurt, and in this case it will help.