Dean Baker the other week:

In case folks missed it, President Obama touted immigration reform as one of the actions he would do for housing. He said that this would raise house prices.

There probably is some truth to this. Normalizing the status of 10-12 million immigrants living in the country will allow more of them to be homeowners, which should have some upward impact on house prices…

However this raises a basic question, why would we think that high house prices are good? Obviously high house prices are good for people who own homes. But they are bad news for people who are renting and hope to become homeowners or young people just starting their own households…

Saying that we want high house prices is in effect saying that we want to transfer wealth from those who don’t own homes to those who do. That looks a lot like upward redistribution, which is not ordinarily an explicit goal of government policy, even if that is often an outcome.

The upward redistribution attributable to rising home prices can look a bit like the debt burden story that people in Washington whine about. The line is that our public debt of $12.2 trillion (76.3 percent of GDP) is a burden that we pass on to future generations.

It’s also about privatizing profit while socializing debt.  (That’s one means of upwardly redistributing wealth.)  Before getting that though, I take issue with Baker’s statement, “Obviously high house prices are good for people who own homes.”  A slightly edited version of my comment in response to his post:

Speaking as a homeowner, I don’t think I buy that. My take is that higher home prices are only good for me if a) our household income is increasing faster than the rate home prices are increasing (no, it’s not) or b) if we were looking to downsize, e.g., retirees (which we’re not).  If we were to move it would be to a bigger house. In moving to a bigger house we’d have to pay the cost differential between what we’d buy and what we’d sell. If the differential is increasing faster than our income (which it is) then I’m not happy about it. Unfortunately, rising home prices also drive up the cost to renovate. In summary, I don’t see any reason to be happy about rising home prices.

I neglected to include assets (exclusive of house) along with salary.  If you consider that many high end homeowners also own other assets and that the value of those assets likely has a positive correlation with home price then the cost differential argument may not be so relevant for well-off homeowners.  I overlooked that but I think the cost differential argument is relevant to most homeowners.  “Should be relevant” is perhaps more appropriate than “is relevant” though.  Commenter Blissex points out a flaw in my thinking:

But most homeowners don’t care about [cost differential] — all they see is the big tax-free capital gains they get on their property, and want bigger tax-free house prices and lower heavily taxed wages.

However they have a point: thanks to the sorcery of Wall Street, homeowners don’t have to downsize to realize their tax-free capital gain, they just need to remortgage, in the process generating massive fees and profits for Wall Street businesses, which is a big advantage it has, and it also has the advantage that capital gains can be monetized without actually selling the property and downsizing, which would depress house prices by way of increased offer of properties.

Blissex also calls out an even more serious ‘Big Picture’ problem:

Home equity extraction as Doug Henwood in “Wall Street: the book” [link added] and others have pointed out has been bigger than GDP growth for most of the past 20 years in the USA, the UK and other countries.

It has been the miraculous engine of bigger profits and growth for Wall Street for decades, and nobody is complaining that the enormous resulting mass of toxic mortgage debt has resulted in it being bought at high prices by the government owned Fannie and Fred and the government sponsored Fed Reserve, to the immense profits of Wall Street, with the result that 95% of the mortgage inventory and market and resulting losses have been nationalized, that is paid by workers to the benefit of speculators.

Yeah, that too.