As millions of homeowners face foreclosure, the government is (slowly) moving forward with a combination of aid packages, mostly aimed at attempting to help people stay in the homes they are in and scale down their mortgages to something they can afford.
In many cases, this will be a losing battle. For example, in California I'm sure that many people who bought homes in the last five years kept up with the non-mortgage costs of ownership (CA's notorious real estate taxes plus upkeep and insurance) by drawing on the rising equity of their home. But that line of "cheap" credit has dried up, as home prices continuing to wilt. Even if their mortgage payments go to zero, many people won't be able to cover their remaining costs because they were borrowing against the future, and presumably infinite increase in the value of their home.
In other words, the hole is so deep that the billions committed to fill it will hardly matter. In six months it will have made as much difference as the money that was poured into the auto companies last December.
So are there other alternatives that are not being discussed that could help alleviate this situation? Say, rezoning neighborhoods that have high default rates?
Most neighborhoods (and I'm willing to bet most of the neighborhoods that are in real trouble today) are zoned as single-family dwellings, often with strict limits on the number of unrelated occupants, and the types of businesses allowed, if any are allowed at all.
If these zoning laws were relaxed to allow reasonable numbers of boarders into homes, or to allow subdivision of McMansions into duplexes or triplexes, and if small businesses like restaurants and convenience stores were allowed to operate, jobs would be created, incomes generated, and owner costs lowered as owners made legitimate business deductions against their property. On the state's side, that reduction in real estate taxes would probably be offset by the other gains in sales and income taxes.
Another possibility would be to allow selective homesteading of foreclosed and abandoned homes. I hear that this is already happening, unhindered, in some parts of the country.
Of course, when markets collapse another way to prop up prices is to reduce the supply, in this case bulldozing a significant number of houses. That doesn't really look practical.
