> Existing land owners, home builders, and mortgage lenders are most certainly not better off if people only buy houses with cash.
The existing land owners are probably the biggest real opposition now, though they wouldn't be any worse off if we had done the right thing to begin with, because then they'd have paid less from the start too. It could be worth a one-time cost of paying them off in some way.
It's debatable whether the home builders would actually be worse off, because most of what people are really bidding up is the land, since construction has a lot more supply elasticity than land. They may even get more work in the long term as people aren't paying loan interest as much, so they ultimately end up with more money that can be used for home improvement projects.
And I don't think people have a lot of sympathy for the plight of the mortgage lenders.
> I also think that whatever the lowest rung on the economic ladder who could plausibly buy property may also be made less well off by shutting them out of the housing ownership market entirely.
Why would it do that? There would still be the same amount of land, so approximately the same people would have it. If it costs less by the same amount as the credit which is no longer available, the main difference is the interest you're no longer paying to the bank. If anything that should benefit people at the bottom of the ladder, who would have had to take loans with higher than average interest rates.
People who are buying houses with 3% down payments are unlikely to be able to buy a house for cash for 3% of current prices. That's the sense in which they may be shut out of home ownership.
One of the most consistent and reliable means to lift oneself from the low end of middle class to squarely middle class has been the leveraged purchasing of property in a city that continues to grow. Taking a 3% or 5% downpayment and having housing appreciate at inflation or slightly higher than inflation is a tremendous wealth creator when that equity is created with leverage.
People buying houses with 3% down payments are generally paying such high interest rates that they don't get to enjoy the home price appreciation because they're paying it all in interest to the bank. Meanwhile they're taking the risk that the house doesn't appreciate faster than inflation, or at all, as was the case for people who bought homes in cities like Detroit. And the bank will want enough interest to cover the risk that the home value declines and they default on the loan, which means many such people are paying more to own than they would to rent, even after including the accumulation of equity.
Homes appreciating faster than inflation is also an unsustainable trend in general. The result has been for housing costs in those areas to increase as a percent of wages, which obviously can't continue indefinitely because the result would be housing costs that don't leave enough for other necessities like food, or that exceed wages outright.
It's true prices probably wouldn't fall to only 3% of what they are now and so the same people couldn't purchase the same house immediately, but rents would fall along with housing costs. The combination of lower housing costs and less paid in interest on huge high-risk loans would allow the same people to own the same house outright in less time, even if it meant renting it for some period of time first. And of course the money they intend to use to buy the house could in the be earning interest before they reach the threshold to buy the house without a loan, which (if the efficient market hypothesis is correct) would give the same risk-adjusted returns in the meantime as investing the same amount in home ownership.
Houses don't have to appreciate at higher than inflation in order for them to create wealth; they just have been in many areas due to the overall economic expansion. They can appreciate more slowly than inflation and the effect of leverage can still give them cash-on-cash returns higher than inflation or alternative investments.
On a conventional mortgage with 20% down, if the house appreciates at 1% per year in a 2% per year inflation environment, a $100K house goes up by $1K each year. Someone who bought that house with $20K down sees a $1K gain on their $20K cash investment, for a 5% cash on cash return. They also have a place to live typically substantially cheaper than they were paying in rent. Obviously, where they increase even faster than inflation, this is wildly beneficial and if they decline much at all, it's terrible.
3% down mortgages seem to cost around 1.25% more than 20% down mortgages. It's about 1/8-1/4% on the base interest rate and 0.5%-1% for PMI. With a base interest rate on a 30-fixed around 4%, paying 5.25% on a 3% down mortgage is still a good deal IMO.
If landlords had to pay cash for rental properties, I'm not convinced that you'd see such a surplus of rental properties such that it would drive rents down significantly. Rents are driven by ability and willingness to pay. Many small landlords would be forced out of the supplying housing to others work. If landlords could borrow money to buy houses but owner occupants couldn't, I think you'd see a massive defection of the housing economy in favor of landlords.
Obviously, anyone could borrow on unsecured terms. It seems likely that medium and large landlords could exploit that (borrowing against the projected cash flows, but without using real estate as collateral for the loans) and that would also result in a large shift of power away from owner-occupants and small landlords.
The existing land owners are probably the biggest real opposition now, though they wouldn't be any worse off if we had done the right thing to begin with, because then they'd have paid less from the start too. It could be worth a one-time cost of paying them off in some way.
It's debatable whether the home builders would actually be worse off, because most of what people are really bidding up is the land, since construction has a lot more supply elasticity than land. They may even get more work in the long term as people aren't paying loan interest as much, so they ultimately end up with more money that can be used for home improvement projects.
And I don't think people have a lot of sympathy for the plight of the mortgage lenders.
> I also think that whatever the lowest rung on the economic ladder who could plausibly buy property may also be made less well off by shutting them out of the housing ownership market entirely.
Why would it do that? There would still be the same amount of land, so approximately the same people would have it. If it costs less by the same amount as the credit which is no longer available, the main difference is the interest you're no longer paying to the bank. If anything that should benefit people at the bottom of the ladder, who would have had to take loans with higher than average interest rates.