Economist Mark J. Perry likes to refer to it as the "Chart of the Century." It is a simple tracker of the prices of various common goods and services that uses 2000 as its base year.
Updated "Chart of the Century" -- see any patterns? pic.twitter.com/p7so2CP6l1— Mark J. Perry (@Mark_J_Perry) January 17, 2021
Most goods produced and paid for entirely within the private sector (electronics, clothing, and toys, for example) become significantly cheaper over time. Some basic necessities follow the inflation rate. But the prices of those things that government subsidizes most heavily, especially higher education and healthcare, have spiraled upward and out of control.
One interpretation of this chart is that it provides a reminder of what inflation really is. On an economywide basis, inflation occurs when too much money is pursuing too few goods and services. But this chart shows that inflation affects things individually in a more concentrated manner when some external force — bad government programs, mass hysteria, etc. — redirects too much money toward a specific segment of the economy where production does not keep up for one reason or another.
This brings us to just one of the more recent terrible legislative ideas to come out of California, a veritable wellspring of such ideas. A leading Democratic state senator now proposes to give first-time homebuyers 17% of their new home's purchase price to help with the down payment. This loan, referred to as the California Dream for All program, would not carry interest or have monthly payments. Rather, it would simply be repaid all at once — years down the road, whenever the house is sold again — in the form of 17% of the sale price. For the homebuyer, then, this is not like most other loans — it is free money with no risks attached at all. If your home value plummets, then so does the amount you owe back eventually.
To shortsighted lawmakers, this probably sounds like a nice way to make housing accessible to more buyers. But in reality, this is an open invitation to sellers to hold out for higher prices and for new buyers (just working out the math) to bid up to 20.5% more than they could have otherwise.
Between this and the legislature's persistent refusal to make California localities relax their zoning laws, housing inflation will continue its upward trajectory in what is already one of the most overvalued housing markets in America today.
California is among the worst states for income and wealth inequality for all the same reasons it is losing population: The state's middle class can neither afford to purchase homes in its good areas nor suffer to live in its crime-ridden, homeless-occupied bad areas. Those who do not already own homes or who have just sold them are leaving for places such as Texas, Idaho, Utah, Florida, Nevada, and others where taxes are lower and economic opportunities still exist for ordinary people. Housing is now booming in many of those states just due to the refugees from California Democrats' terrible governance.
Real estate is already too heavily subsidized. The Trump tax reform bill of 2017 improved things slightly by limiting the mortgage interest tax deduction, but two decades of artificially low interest rates and government-subsidized loans are still making real estate an unnaturally attractive investment.
Obviously, California needs to reject this new housing subsidy — for precisely that reason we have little faith that it will. But the best thing that could happen for housing markets across the United States, in terms of both pricing and accessibility, would be for all governments to get out of the business of housing policy and especially to stop trying to create artificial inducements for homeownership.
Beyond basic zoning laws and building codes that keep people safe and prevent consumers from being ripped off, there is no role for government in housing at all. There is no more obvious evidence of this than California's creeping third-world economy in which soon enough, the only people left will be the ones who own entire city blocks in downtown Los Angeles and the ones who sleep on them.