Interventionist responsibilities for the emergence of the US housing bubble and the economic crisis: ‘neoliberal deregulation’ is not the issue

ABSTRACT

Many commentators and scholars blame a lack of regulation for the present economic crisis. They maintain that the crisis is mainly due to the alleged neoliberal deregulation of the socio-economic system. This article considers a different possible explanation, attributing greater responsibility to interventionist public policies. In this perspective, and within a framework of general reform, the role of land and building regulations in particular will be critically discussed. To avoid any misunderstanding: the idea is not to put ‘all’ the blame on public intervention, but to also recognize its contribution.

KEYWORDS:

• Economic crisis
• housing bubble
• growth control
• growth management
• homeownership

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 Among the many, see Kotz (2009), Supiot (2010), Crouch (2011), and Lippit (2014).

2 I thank two anonymous referees for their helpful critical comments on an earlier version of the article. I am also grateful to Wendell Cox, Randall Holcombe and Randal O’Toole for additional valuable comments and suggestions. Obviously, any remaining error or inaccuracy is my responsibility alone.

3 By November 2007, only 14% of US mortgages were sub-prime (Davidson, 2010). Moreover, ‘sub-prime loans’ did not actually perform any worse than ‘prime loans’ (White, 2009).

4 ‘Teleocracy’ (Moroni, 2010) is a form of government in which ‘patterning-instruments’ are the main tools used by the (local) state to regulate (not only its actions but also, and in particular) the actions of private parties. In the case of land use, ‘patterning’ refers to a particular configuration of the urban system. The typical tool is a comprehensive set of prevalently ‘map-dependent rules’ – that is, rules which are different for different tracts of land within the same city – which can be termed ‘directional’. Patterning-instruments aim to define the role of the diverse parts or components of the urban structure: they look for a form of substantive coordination. They are ‘shaping-devices’.

5 Such complex and heavy development regulations induce developers to switch their attention to high-income consumers because cost increases force them to produce more expensive and more profitable housing, so that it is actually easier for them to transfer these costs (Katz & Rosen, 1987).

6 But the Las Vegas market, which dominates Nevada, had a land supply shortage arising from other kinds of (institutional) situations. (For instance,

there are virtual urban growth boundaries in Las Vegas … , namely, the boundaries defined by circumferential government owned land. Some government land has been released to the market through auctions intended to maximize revenues, a goal in conflict with maximizing housing affordability. (Cox, 2011, p. 21)

7 Note that the existence of this possibility in and of itself reduced the precautions taken by the original lenders (Foldvary, 2007).

8 Regarding the somewhat unconvincing ‘deregulation hypothesis’ to be noted is that in the US the ‘Federal Register’ reports that 87,282 final rules – regarding all fields – have been issued since 1993 (Competitive Enterprise Institute, 2014). As Ferguson (2013, p. 51) observes: one of the very few chapters in the crisis history that partially fits the ‘blame deregulation’ thesis is perhaps the repeal in 1999 of the Glass-Steagall Act of 1933: ‘But … it is hard to think of a major event in the U.S. crisis … that could not equally well have happened with Glass-Steagall still in force’. Compare with Markham (2010) and White (2010).

9 Past examples of non-neutral (and asymmetric) tax policies that failed in their aims include farm subsidies and ethanol subsidies.

10 ‘Nomocracy’ is a form of government in which only ‘framework-instruments’ are used to regulate private actions, whereas patterning-instruments are introduced solely as means to discipline public actions (e.g. to supply basic public infrastructure on public land with public funds). The typical tool is a set of prevalently ‘non-map-dependent rules’ that can be termed ‘relational’. ‘Non-map-dependent rules’ are non-map-dependent within the pertinent territory of the relative public authority; each municipality will therefore have its non-map-dependent rules. Framework-instruments do not define the specific role of the various parts and components of the urban structure; rather, they merely exclude specific interrelationships among them. They introduce only a form of ‘abstract coordination’. Framework-instruments are not shaping-devices, but ‘filter-devices’. Filter-devices merely involve avoiding certain – few – negative effects, while leaving all the other possible outcomes open-ended (Moroni, 2014).