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Scale in the Housing Market


The NYT discusses efforts by local governments to use public money to purchase and renovate foreclosed properties to help revitalize hard-hit areas. At one point the article presents a comment from an economist at the CATO Institute complaining the program that supports this effort will distort the housing market and that it would be best to leave this process to the private sector.

It would have been helpful to put the size of the program in context. The program involves $4 billion in federal money. This is equal to approximately 0.02 percent of the value of the $20 trillion housing stock. It is equal to approximately 0.3 percent of annual housing sales. Spending of this magnitude is not likely to lead to large distortions in the housing market.

--Dean Baker

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