Whence came unstable housing finance?

Over the weekend, Thomas Sugrue, a highly regarded history professor at Penn, wrote a piece in the Wall Street Journal that implied that we over-subsidize homeownership, and that government programs have produced instability in the housing market. I am not sure either is true.

With respect to homeownership, for those at the margin of owning, net subsidies may flow more to rental than owner housing. Section 8 vouchers support renting, not owning, and the mortgage interest deduction provides no benefit to those who don't itemize--i.e., low income households. It is well established that Fannie and Freddie do no better, and perhaps worse, than the private when it comes to providing first time homebuyer with mortgages. The government does encourage overconsumption of housing for high income households, but that is a different matter.

As for stability, well, as Professor Sugrue correctly points out, it was the housing market of the 1920s, which was financed in the absence of any public sector support, that helped produce the Great Depression. And the preponderance of unstable mortgages originated in this decade were originated by purely private players.