I was recently made aware of Randal O'Toole's book on the housing bubble, "American Nightmare". I'm embarrassed to say it had escaped my vision before now.
I have developed a sort of "everyone is wrong about everything" attitude about this topic. But O'Toole basically gets it right.
Most of the book is a brief review of the history of homeownership and urban housing policies, capped off with an explanation of how that history led to the bubble because of disastrous supply constraints that are always at the heart of housing affordability problems. The credit issues were a result of that problem, not the cause.
He has a 10 point prescription for fixing the problem that is generally pretty good. It includes more skepticism about FHA, the GSEs, and the rating agencies than I generally hold. But, his skepticism includes the point that in high cost areas, where low down payments were used to help usher new buyers into homes, we should probably have been requiring higher down payments because constricted housing creates more volatility. That's a good point, worth considering. And, he notes that those sorts of measures would be unnecessary, if not for the supply problem itself.
In general, I think ownership should be more about self-selection than about affordability. Transaction costs are high, so there is a natural self-selection of buyers who expect to own long enough to amortize transaction costs. Beyond that, it's not like families are choosing between buying a home or living under a bridge. They will be renting if they aren't buying. Affordability is only a problem in high inflation contexts because of mortgage conventions and money illusion. Obstructing ownership for affordability reasons isn't coherent. Typically, the decision to own reflects some deferred consumption, because of the front-loaded nature of mortgage cash outflows. The notion that we have to keep households with moderately low incomes from access to mortgage financing, because they will become reckless speculators if we don't, is policy from attribution error. High down payments are an added obstacle that prevents households from gaining control over their living space.
But, as O'Toole notes, low down payments are really mainly a problem in Closed Access contexts.
I have generally thought well of O'Toole's work on topics like mass transit. After reading this book, my estimation of the quality of his work on topics that I am not as informed about just went up. He got the big picture right on this one where others rarely have.