Fixing the Housing Market: Financial Innovations for the Future (Wharton School Publishing--Milken Institute Series on Financ) Hardcover – 14 Feb 2012
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From the Back Cover
“This is an engaging, nontechnical, accessible, and cogent set of analyses for fixing the housing market. The authors provide an elegant, compelling, insightful, and timeless evaluation of how to resolve the current housing crisis.”
--Professor Robert Edelstein, Maurice Mann Real Estate Chairholder and Co-Chair Fisher Center for Real Estate and Urban Economics, Haas School of Business, University of California at Berkeley
“The authors suggest both frameworks and financial tools necessary to fix the troubled markets. The book is clearly and concisely written and useful to all those seeking an integrative and thoughtful assessment of where we go from here.”
--Stuart A. Gabriel, Professor of Finance and Arden Realty Chair, UCLA Anderson School of Management
“You will not find a more timely and relevant book, and from a team of authors with great expertise ranging from the academic frontier of the study of bubbles to the practical reform of our housing finance system. We really need this clear analysis to help us better understand what often is portrayed as an overly complex topic.”
--Joe Gyourko, Martin Bucksbaum Professor of Real Estate, Finance and Business & Public Policy, The Wharton School, University of Pennsylvania
“The authors remind us that the current housing finance crisis is not singular, but part and parcel of the long-term coevolution of finance and housing markets. While readers might not agree with all of the conclusions drawn by the authors, the volume of content, which is presented quite accessibly, allows for the formation of the readers’ own conclusions.”
--George McCarthy, Ph.D., Director, Metropolitan Opportunity, The Ford Foundation, New York, NY
“In this insightful and important book, three of the nation’s leading experts on financial innovation explain how future innovations can continue to finance home ownership without taxpayers being so heavily on the hook for mistakes as they have been as a consequence of the crisis.”
--Robert E. Litan, Vice President for Research and Policy, Kauffman Foundation, and Senior Fellow, Economic Studies, The Brookings Institution
“You can’t understand the future of the U.S. housing market without an appreciation of its history, as well as housing markets in other countries. This book provides this valuable context, followed by innovative solutions informed by careful analyses of public policies, business practices, and consumer behavior.”
--Professor Peter Tufano, Peter Moores Dean, University of Oxford, Saïd Business School
Since the ancient Greeks, financial innovation has enabled more people to own homes. Today, responsible financial innovation is the best tool available for rebooting crippled housing markets, improving their efficiency, and making housing more accessible. In this book, three leading experts explain why and cover everything decision-makers should know about housing finance.
The authors first clarify how housing financial products, services, and institutions evolved through the past two centuries, culminating in the era of securitization and the “mortgage meltdown.” Next, they assess housing finance systems in today’s mature economies, highlighting benefits and risks associated with each leading mortgage funding structure and product. They also assess housing finance in emerging economies such as Brazil, Russia, India, and China.
Building on these insights, the authors identify important financial innovations that can facilitate a more stable and sustainable financing system for housing--providing better shelter for more people, helping the industry recover, and creating thousands of new jobs.
A history of financial innovation in housing
From “mortgage stones” to mortgage-backed securities, and beyond
What went wrong?
Why housing markets really failed: learning the right lessons
Promoting more robust, stable, and sustainable housing markets
Implementing productive solutions, avoiding counterproductive policies
Delivering the right products via the right delivery modes
Crafting the right financial structures for new construction, access, and retrofitting
This volume is part of a series of books on financial innovation, published through a collaboration between Wharton School Publishing and The Milken Institute. Future volumes will focus on other frontiers of financial innovation, including such critical topics as healthcare, energy, and environmental finance.
About the Author
Franklin Allen is the Nippon Life Professor of Finance and Professor of Economics at the Wharton School of the University of Pennsylvania, where he has been on the faculty since 1980. A current codirector of the Wharton Financial Institutions Center, he was formerly vice dean and director of Wharton Doctoral Programs as well as executive editor of the Review of Financial Studies, one of the nation’s leading academic finance journals. Allen is a past president of the American Finance Association, the Western Finance Association, the Society for Financial Studies, and the Financial Intermediation Research Society. His main areas of interest are corporate finance, asset pricing, financial innovation, comparative financial systems, and financial crises. He is a coauthor, with Richard Brealey and Stewart Myers, of the eighth through tenth editions of the textbook Principles of Corporate Finance. In addition, he is coauthor, with Glenn Yago, of Financing the Future: Market-Based Innovations for Growth. Allen received his doctorate from Oxford University.
James R. Barth is the Lowder Eminent Scholar in Finance at Auburn University and a Senior Finance Fellow at the Milken Institute. His research focuses on financial institutions and capital markets, both domestic and global, with special emphasis on regulatory issues. He has served as leader of an international team advising the People’s Bank of China on banking reform and traveled to China, India, Russia, and Egypt to lecture on various financial topics for the U.S. State Department. He was interviewed about the financial crisis of 2007 to 2009 by the Financial Crisis Inquiry Commission and the Congressional Oversight Panel. An appointee of Presidents Ronald Reagan and George H. W. Bush, Barth was chief economist of the Office of Thrift Supervision and previously the Federal Home Loan Bank Board. He has also held the positions of professor of economics at George Washington University, associate director of the economics program at the National Science Foundation, and Shaw Foundation Professor of Banking and Finance at Nanyang Technological University. He has been a visiting scholar at the U.S. Congressional Budget Office, Federal Reserve Bank of Atlanta, Office of the Comptroller of the Currency, and the World Bank. Barth has testified before the U.S. House and Senate banking committees on several occasions. He has authored more than 200 articles in professional journals and has written and edited several books, including The Rise and Fall of the U.S. Mortgage and Credit Markets: A Comprehensive Analysis of the Meltdown; Rethinking Bank Regulation: Till Angels Govern; Financial Restructuring and Reform in Post-WTO China; China’s Emerging Markets: Challenges and Opportunities; The Great Savings and Loan Debacle; and The Reform of Federal Deposit Insurance. His most recent book is Guardians of Finance: Making Regulators Work for Us. Barth is the coeditor of The Journal of Financial Economic Policy and overseas associate editor of The Chinese Banker. He has been quoted in news publications ranging from The New York Times, The Financial Times, and The Wall Street Journal to Time and Newsweek. In addition, he has appeared on such broadcast programs as Newshour, Good Morning America, Moneyline, Bloomberg News, Fox Business News, and National Public Radio. Barth is also included in Who’s Who in Economics: A Biographical Dictionary of Major Economists, 1700 to 1995.
Glenn Yago is Senior Fellow/Senior Director at the Milken Institute and its Israel Center. He is also a visiting professor at Hebrew University of Jerusalem where he directs the Koret–Milken Institute Fellows program. Yago is Founder of the Institute’s Financial Innovations Labs®, which focus on the innovative use of finance to solve long-standing economic development, social, and environmental challenges. His financial research and demonstration projects have contributed to policy innovations fostering the democratization of capital to traditionally underserved markets and entrepreneurs in the United States and around the world. Yago is the coauthor of several books, including The Rise and Fall of the U. S. Mortgage and Credit Markets; Global Edge; Restructuring Regulation and Financial Institutions; and Beyond Junk Bonds. In addition, he is coauthor, with Franklin Allen, of Financing the Future: Market-Based Innovations for Growth. He was formerly a professor at the State University of New York at Stony Brook and at the City University of New York Graduate Center’s Ph.D. Program in Economics. Yago earned his Ph.D. at the University of Wisconsin, Madison.
A nonprofit, nonpartisan think tank, the Milken Institute believes in the power of capital markets to solve urgent social and economic challenges. Its mission is to improve lives around the world by advancing innovative economic and policy solutions that create jobs, widen access to capital, and enhance health.
Top customer reviews
Within this environment and the struggle for solutions, this book serves a need, for it provides two key points of perspective. The first is that of history, the book opens with a brief description of how home and land ownership has evolved over the last few centuries. There has been a dramatic change in housing in the last few centuries and the financial system has had to change in order to support the purchase of human dwellings. It was also noted that widespread home ownership is a way that societies are stabilized; people that own their homes have solid roots in the community, so a high percentage of home ownership is desirable.
The second is that with capital able to smoothly and rapidly flow across borders and it being necessary to finance home ownership, the housing crisis in a global one. When the crisis is being discussed in the American media, it is often treated as if it is isolated to America when it is not. The authors spend a great deal of time describing the situation in China, how there has been a dramatic transition in the way housing is acquired in China. Around the world, there is a lack of quality and affordable housing; a large number of people are living in slum conditions, yet another aspect of the housing problem that must be addressed. Attempts to finance home ownership in on part of the world can draw capital from other area. Many charts and graphs are used to reinforce the points of setting the environmental context for the problem.
While the authors do mention several ways in which the housing crisis can be dealt with, it is clear that there is no one single solution, the American federal government has neither the money or the political will to do anything other than apply small fixes. As you read through the sections, it is clear that there is no one action that will solve the housing crisis, it is going to take years and the application of selective fixes before a housing market that is anywhere near normal will emerge. Getting there will also require the posing and answering of two very critical questions. The first is, "What is the ideal percentage of foreclosures that can be allowed in the movement towards achieving a sustainable housing market?" This is critical, if there are too many, the market may collapse with large numbers of dwellings remaining empty, a drag on the local governmental entities as well. If there is not enough, then people that are unable to pay their mortgage are being artificially propped up and are likely destined to fail, meaning that their situation is not part of the solution.
The second question is, "What is the desirable percentage of home ownership?" One of the reasons for the collapse of the housing market was the push to get people in houses, which led to many people incapable of paying off mortgages acquiring them. Clearly, the percentage of people that "owned" their own home before the collapse was unsustainably too high.
This was a very interesting book, the background material made it clear what went wrong and the large number of potential problems in the movement towards a solution. A complete solution is not given, new and more robust financial structures must be put in place and the fundamental questions answered. Yet, the description of the problem and the discussion of solutions is an excellent learning experience.
This book was made available for free for review purposes.
Most helpful customer reviews on Amazon.com
This positive attitude is refreshing in a debate that seems to be dominated by those people determined to pin all problems on government versus people pushing unaffordable expansions of government programs that have failed dismally in the past. To start with this book points out that the real housing problem is that over half the world lives in cities (for the first time in history) and over half of those people live in slums. All projected future population growth will occur in cities and even optimistic estimates of the increase in decent urban housing stock will not provide significant shelter for these new households. The only hope is a vibrant and innovative housing market, which will require energy and fresh thinking, not ideological battles.
The book traces a variety of ways that governments can help, mostly by getting out of the way. Land use restrictions for the benefit of existing residents, tax and subsidy policies that favor ownership over renting, corruption and burdensome bureaucracy in all aspects of developing and financing real estate and political marginalization of people with inadequate housing are major impediments to solutions. But governments do have some positive contributions to make, including clarifying property rights, simplifying legal structures and providing carefully-targeted subsidies. More aggressive government programs are analyzed critically. The mortgage interest deduction in the United States, for example, is hugely expensive and subsidizes relatively wealthy people, encouraging them to buy more and bigger houses and actually depleting the available stock for everyone else. Government housing projects have been massive disasters, as have most intrusive subsidies and price controls. Simple vouchers schemes for people unable to afford decent housing are, by contrast, cheap and effective.
The financial system comes in for its share of blame as well, but from a different perspective than the usual account. The authors spent little time lamenting recklessness, and no time worrying about greed. The focus is on innovations that address the problem, because in their view it will take a well-functioning market to house everyone. Unlike many other accounts, this one points out forcefully that most innovations, both in constructing and financing housing, fail, including ideas from well-regarded geniuses like Frank Lloyd Wright and Buckminster Fuller. But some succeed and this book catalogs many of them: both historical and recent.
My one point of disagreement is there is scant consideration of the fact that a lot of powerful people don't want everyone to have decent housing. There is a constant emphasis on public-private partnerships in which philanthropists and enlightened regulators smooth the path for honest and competent profit-oriented entrepreneurs. There are examples of relatively small-scale success of these efforts, and a suggestion that by building on the ideas that work, we can solve the large-scale problems. But converting slums to decent apartments requires extensive changes in the nature of urban living. It will be denser, with people having less control of their environment. Just as suburban living eviscerated many US inner cities, some of these innovations may spell the end of middle-class suburbs. There is an important political dimension to this, suburbanites isolated from many urban problems vote differently than newly-empowered people rescued from slums. Another change not everyone will welcome is a redirection of individual saving, especially retirement saving, from bank and government mediated business investment to disintermediated economic support for residential housing. The subsidies the authors want to see for people trying to afford decent housing have to come from somewhere, both the people who already have decent housing and the people who cannot afford decent housing even with help will likely find arguments against such plans.
However you feel about these issues, this is an essential reference laying out the history and issues, including many aspects you won't read about anywhere else. It's short and easy to read, but packed with essential information. And, right or wrong, at least it's focused on positive innovation to make the future better instead of finger-pointing about past abuses. I recommend this book for anyone interested in either housing or economics.
The book opens with a broad explanation of the current state of the global housing crisis, an overview of financing for housing, the economics of housing and financial innovations in financing. The writing is clear and persuasive, illustrated with charts and graphs, and carefully supported with citations.
I found the chapter on Building Blocks of Modern Housing Finance particularly fascinating and informative. The book compares U.S. homeownership to homeownership in Europe from 1890 to the present through an examination of a range of factors such as but not limited to cultural values, low rents, conservative mortgage lending, and amount of support for "social" rental housing. The book covers various U.S. laws, U.S. government institutions and government owned or supported institutions, their creation and their impact on the ability of Americans to purchase homes. The chapter also shows risks unique to the U.S. housing market and the reasons for these vulnerabilities.
I'm not an economist. I'm interested in the housing market and the mortgage crisis as a homeowner and an investor in real estate. I read the book to get a better understanding of the mortgage industry, the various government programs that help shore up homeownership, and to learn more about financing for real estate projects. Fixing the Housing Market was extremely helpful as it provided me with a fuller understanding of financing home purchases and government programs on homeownership. Highly recommended!
ISBN-10: 0137011601 - Hardcover $34.99
Publisher: Pearson Prentice Hall; 1 edition (February 24, 2012), 208 pages.
Review copy courtesy of the Amazon Vine Program and the publisher.
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