Measuring performance of US homeownership policies past and present

The past century and a quarter can be divided into three successive eras for homeownership policy characterization. For the first four decades, the federal government pursued a laissez-faire policy that left housing issues to the individual states and private markets. For the next six decades, the federal government implemented a policy created as part of the Roosevelt New Deal program. Finally, the Clinton administration discarded the New Deal policy in favor of a more aggressive policy that has continued to the present day. The purpose of this study is to compare the performance of the respective policies.

The study introduces two metrics. The first metric, based on government homeownership rate data, enables comparison of the laissez-faire and New Deal policies. The second metric, based on financial frictions in the mortgage market, enables comparison of the New Deal and Clinton policies.

Analysis based on the first metric suggests the New Deal policy was successful in meeting its macroeconomic objectives and was more effective overall than the laissez-faire policy. Analysis based on the second metric suggests the New Deal policy was also more successful in both respects than the Clinton policy.

The findings suggest that the Clinton homeownership policy was the primary driver behind the recent US housing crisis and that vulnerability in the secondary mortgage market created by the Clinton policy represents systemic housing market risk.

The study introduces simple analytical tools to address problems related to systemic risk in the US housing and housing finance markets due to homeownership policy.