A Critical Approach to the Subprime Mortgage Crisis in the United States: Rethinking the Public Sector in Housing

Introduction

This article deals with the subprime mortgage crisis in the United States, as part of a more generalized housing crisis (itself part of the broad economic crisis) and uses exposure of the roots of the subprime mortgage crisis, proposals for addressing it, and for politicizing it, as an example of what further might be done.

The subprime mortgage problem is part of a crisis in housing that has been part of the U.S. housing landscape for a long time. It was officially recognized at least as far back as the Housing Act of 1937, whose objective was to provide “adequate housing within their means for all Americans.” That promise was never fulfilled, and the history of U.S. housing policy is replete with one effort after another to solve the problem while preserving the dominance of the private housing market. There is an obvious injustice in the results of such a system. the foreclosure of homes marketed to families of limited income is only the most current excrescence of that on–going crisis.

Underlying the argument here is the understanding that the housing crisis, of which the subprime mortgage crisis is a part, is an inherent consequence of an economic system, broadly called capitalist, in which housing and land are produced, sold, and managed for private profit, grounded in an economic system whose motor is the drive for increasing profit. Housing, to the extent needed for a normal life, should be a public responsibility, with the for–profit private sector's being supportive only, restricted to where it can demonstrably assist in meeting public needs. By contrast, today the public sector is disfavored and widely stigmatized, for both materialistic and ideological reasons. the argument runs as follows:

The subprime mortgage crisis is not a result of greed or stupidity. It is not because the underlying system for the provision of housing is not working. the crisis occurs precisely because the system is working. the prevailing system and the consequent subprime mortgage crisis rests on three pillars: (1) the commodification of almost all housing; (2) the restriction of governmental involvement; and (3) the propagated myth of homeownership. They are each discussed in detail below.

The private sector is seen as the appropriate means for providing housing, and is dominant in all matters related to its provision. the reasons for the dominance of the private for–profit sector in the housing industry are, on the one hand, the political power of that sector at all levels of government, particularly the local, and on the other hand the ideological and propagated dominance of the belief in private homeownership as the ideal form of housing tenure.

The public sector in the United States has consistently been seen as filling in only where the private for–profit sector is not functioning. Its scope has been consistently limited during liberal times and severely cut back during conservative periods, while in both periods favoring programs to aid middle–income households over lower–income ones and private ownership and management over public.

Steps to deal with the crisis would go well beyond mere regulation, and would need to abandon the ideological commitment to single–family speculative home ownership as the ideal to whose expansion all measures should be directed, with the accompanying failure to distinguish within the meaning of “private” between “private individual ownership for use” and “private ownership for profit.”

Responses to the crisis should provide for alternate forms of homeownership other than the speculative form. This might include conversion of private homeownership into various forms of cooperative and social housing, elimination of public enshrining of private profit–oriented homeownership, system–wide rent controls, confiscatory speculative profits taxes, and direct public ownership. It would build on those advanced by many housing advocates already. They would deal with the spatial aspect of the crisis, and consider neighborhood and community–building potentials in any serious proposal. Such responses all in fact move in the direction of limiting the role of the private market in the housing system, and could be explicitly linked to a longer–term effort to restrict and finally eliminate the role of private profit in the production, ownership, and management of housing: producing a socialized housing sector.

Against the background, then, of a limited rise in wages and the quest for ever–increasing profits in the private housing industry, we have referred to the three long–standing pillars that support the specific form of the housing crisis the United States faces today.

The First Pillar: The Private Profit–Oriented Market

The private housing market system itself produces these crises in housing, not because it is failing, but because it is working. Housing is only provided to those who can pay enough for it to make a profit for its supplier. Today, there is not a single city in the country in which a full–time worker earning the minimum wage can afford even a one–bedroom apartment, a situation in which African Americans, Hispanics, immigrants, and women suffer in grossly disproportionate numbers. When it then turns out that the buyers cannot repay the loans, as was predictable, and foreclosure results, it appears as a credit crisis, rather than the housing crisis it really is.

The first pillar of the crisis is thus the nature of housing development in America: it relies on the private for–profit sector to meet housing needs, and leans on the second pillar, the restricted role of government.

The Second Pillar: The Restricted Role of Government

Government action is welcomed by the private housing industry to the extent that it facilitates the construction, marketing, sale, and management of housing for profit, as by the provision of infrastructure, layout of streets, judicial enforcement of contracts, provision of police and fire services, technical research, and setting of common standards, and so on. But as to the public provision of housing, government is required to be penurious to the point of starvation in the resources it provides to meet the true need for housing, one of life's necessities. the history of attempts to change the system by governmental action is rife with the lesson that piecemeal reforms can ameliorate, but don't solve, the problem. Grassroots groups, alarmed by one phase of the crisis or another, have pushed for reform. With only one significant exception—public housing—and even that one to a limited degree, every public program to enlarge the supply of affordable housing has relied on bribing the private housing industry to make its product more affordable (Marcuse, 1995; Marcuse and Keating, 2006). Those programs have systematically been underfunded, have never been made a matter of entitlement, and have always been conspicuously inefficient in terms of the amount of subsidy siphoned off by those involved in producing for–profit housing. That's the first pillar of the housing crisis, the first big problem with the way the system works: it relies on the private sector to meet housing needs, and is penurious to the point of starvation in what government resources it makes available to meet the true need for housing, one of life's necessities.

The Third Pillar: The Myths of Speculative Home Ownership

All efforts to address the housing crisis have also been colored by the officially promulgated fantasy of homeownership as the American Dream. It is a powerful ideology that relies on a myth and confusion. One is the widespread equation of homeownership with the single–family house on its own lot—a design concept that would puzzle a majority of the people living in cities in the industrialized world. the confusion lies in the idea that homeownership is necessarily linked to the possibility of making a speculative profit on a rise in its price. More broadly, the confusion is linked to a misunderstanding of the possible range of tenure forms. the idea that only through private speculative ownership can security of tenure be attained, and that security being identified with freedom from a landlord's right to evict, ignores the fact that the right to evict can be limited in a whole variety of ways—and ignores the fact that conventional homeownership does not necessarily provide that security, as millions of households are finding out today. These are ideological problems. Most buyers accepting this ideology are unaware that there are other forms of tenure that can provide equal rights of occupancy, because ownership is in fact a complex bundle of rights (Marcuse, 1972), among which security of occupancy may or may not be provided, and to which the possibility of speculative profit or loss need not necessarily be linked.

Proposals Impacting on the Crisis and Its Roots

Within the range of the realistic, what proposals might have a significant impact on the crisis and its roots?

1.

Nation–wide moratorium on evictions.