Mastering the metropolis through research and thought leadership.
Working Papers

The Public Option in Housing Finance

Working paper #723
Adam Leviti and Susan M. Wachter

The U.S. housing finance system presents a conundrum for the scholar of regulation because it defies description using the traditional regulatory vocabulary of command-and-control, taxation, subsidies, cap-and-trade permits, and litigation. Instead, since the New Deal the housing finance market has been regulated primarily by government participation in the market through a panoply of institutions. The government’s participation in the market has shaped the nature of the products offered in the market. We term this form of regulation “public option” regulation. This article presents a case study of this “public option” as a regulatory mode. It explains the public option’s rise as a governmental gap-filling response to market failures. The public option, however, took on a life of its own as the federal government undertook financial innovations that the private market had eschewed, in particular the development of the “American mortgage”-a long-term, fixed-rate fully amortizing mortgage. These innovations were trend-setting and set the tone for entire housing finance market, serving as functional regulation. This history suggests that an awareness of the public option regulatory mode in housing finance is in fact critical to its long-term success, and that the public option is a well-pedigreed regulatory mode that has historically been associated with stable housing finance markets.

Download full paper · 2MB PDF

In This Section
Explore Topics

1010 Affordable Housing Amazon Amenitization Architecture Artificial Intelligence Asia Australia automation Autonomous Vehicles bonds Borrowing Constraints Brexit California Canada Capital Business China Co-Working Environment coastal markets cold storage Colombia Commercial Brokerage Commercial Real Estate commissions Congestion consumer bias covid-19 CRE credit card market Credit Default Swaps Credit Insurance Credit Risk Transfers Culture Data Analytics data centers Data Collection Technology Debt Market Demand Demographics Density Development Discrete Choice disruption Diversity drones e-Commerce Economic Corridors economic policy economics education election studies Equity Funds Equity Market Ethnic Factors Europe Fannie Mae financial asset management Foreclosures Foreign Policy France Freddie Mac general equilibrium Global global economy Global Financial Crisis Globalization great depression Great Recession healthy buildings Hedonic hospitality Housing & Residential housing boom Housing Disease housing prices Housing Supply Identity Income Inequality India inflation Inter-generational mobility interest rates Investing jobs labor market Lagging Regions land use regulation Language life sciences Macroeconomics malls Market Pricing megacities Microeconomics Migration Minimum Payments Mixed-Use Mobility moral hazard mortgage insurance mortgage market Mortgage Rates Mortgages Multi-family Nation Building Non-Traditional Mortgages Office Market office sector pension funds Placed Based Policies Political Risk Price Discovery Private Equity Business public health public policy Public Schools real estate brokerage Real Estate Investment Real Estate Investment Trusts Recession Rental Retail Retirement reverse mortgages Risk Adjustment risk management risk-shifting robotics single family housing Slums Sorting South America Spatial Regions spillover effect stimulus package Sub-Prime Mortgages Supply Chains Sustainability Technology telecommunications trade transportation unemployment United States Urban Urbanization Warehouse welfare work from home