Page 14 RAIN March/April 1984 the natural shortages of preferable climate and living conditions. Artificial scarcity stems largely from institutional pressures on the housing market—from finance structures and government monetary and tax policies. The situation is similar to that in the oil industry. When supplies are plentiful compared to demand, a buyer's market exists, and the price tends to fall toward the real economic costs of producing the oil. In a seller's market, where demand is greater than what is being produced, the sellers can soak the market for all it will bear. In such situations, prices have no relation to the actual costs of existing oil or housing supplies. They are limited only by the cost of available alternatives—alternative energy sources and conservation on the one hand and the economic cost of new housing on the other. Although both economic and monetary costs are usually affected by pressures on the housing market, they are differently susceptible to the influence of public policies. Population growth, for example, may cause protracted housing shortages, resulting in scarcity Operating in the normal money market has meant that home mortgages have had to compete with other investments whose high profits from exploitation of people and resources set exorbitant expectations of return on investment. prices. Such price increases are monetary, not economic, and can be reversed through proper expansion of the housing supply. Public policies can assist this expansion of housing supply. As the housing supply expands, it shifts toward a dominance of new housing, raising the average economic cost of the housing supply. These increased costs are real economic costs, and they take a generation to be absorbed and eliminated. Public policies can have little impact on this process, other than to create a housing surplus to ensure that prices drop as economic costs are absorbed. Population growth also interacts with limited factors of favorable location, climate, scenic and cultural conditions, thereby generating more competition for housing and increases in the monetary cost of housing in such locations. Such increases are generally permanent and largely irreversible. Our building industry hasn't been able to prevent or eliminate housing scarcities, largely because of government tax and monetary policies and the nature of our financing structures. Most other major industries have become concentrated in a few firms that have their own consumer-finance divisions and that finance their growth and operations internally through retained profits. In contrast, the housing industry has remained decentralized and dependent ilpon bank-mortgage financing, which bears the brunt of government monetary policies. Monetary policies that rely on manipulation of interest rates to control the economy have little effect upon internally financed industries. They do, however, have a disproportionate impact on the housing industry, causing periodic massive curtailments of its output. When the money is available, the industry doesn't have the capacity to meet the demand, and when it has the capacity, people can't get mortgage money. Keeping these ideas in mind, let's now look at how we can reduce—or avoid the need for—each of our expenditures for housing. 1. Eliminating finance costs: No-interest revolving loan funds A no-interest state-wide revolving loan fund for housing can, in one stroke, reduce the total purchase cost ofa home by 65 % to 75%. Finance costs are by far the biggest single factor in what consumers pay for housing, amounting to 65% to 80% of the actual price paid. The average house is bought and sold, mortgaged and remortgaged, every eight years. Instead of being free to its users after a century of use, the house costs its new occupants several times as much as the original sales price, and has cost its users 10 to 12 times its total economic cost in continued finance charges over that period. Our present home-financing concepts are an outdated and unaffordable legacy from a time of low interest rates, few mortgages, and a housing market dominated by existing housing and low prices. These low prices and interest rates meant that the surcharge of finance payments were also not large. But with today's popula-' tion growth, scarcity housing prices, dominance of new housing on the market, and high interest rates, the impact of finance charges upon housing costs has become unbearable. Yesterday's justifications have become unworkable in today's conditions. Today virtually all housing is bought with mortgage money, and everyone ends up paying an immense financing surcharge. We do not all need mortgage money at the same time. So what really takes place is an equal loan of the same money back and forth, from one of us to another, as we each have need of it. For a necessity that virtually everyone "purchases," housing mortgage loans can and should be treated like the true economic trade of time and energy they are—without a massive finance charge. It is absurd that each and every one of us should have to pay an added financing "tax" of up to 10 years of our labor and income. That outdated concept triples the cost we must pay for housing. The numerous special-interest loan-subsidy programs for veterans, the elderly, low-income households, farmers, and others are clear testimony that our conventional financing concepts are not considered workable today. Most of those programs, however, consist of a continued outflow of our tax dollars to finance institutions to underwrite their lending fees, which buyers cannot afford. Such programs do not reduce the actual costs, but only alter which pocket pays for it. Operating in the normal money market has also meant that home mortgages have had to compete with other investments whose high profits from exploitation
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