A member of the president's Council of Economic Advisers testified yesterday that the only solution to the nation's housing crisis is patience -- but increasingly impatient House subcommittee members said they want more answers from the administration.
CEA member Jerry L. Jordan, testifying at the House Banking subcommittee on housing, said a policy of "stable and moderate" money growth already has started to bring interest rates down, and he predicted rates would fall two to three percentage points by the end of the year.
A continuation of current monetary policies will lower inflation and interest rates, and this in turn will bring about a revival in the housing industry, Jordan said.
Interrupting Jordan as he started to repeat how inflation affects housing, Banking Committee Chairman Fernand St Germain (D-R.I.) countered, "We accept inflation and the fact it exists. But what do you say to the people out there who have no place to live? Go stay in a tent until inflation comes down?"
St Germain pointed out that Jordan had just said that the most optimistic housing-start projections for next year show a level of 1.8 million units, while demand is projected to be 2.5 million units.
"You're going to have people lined up for housing like people were lined up for gas a few years ago," St Germain told Jordan.
Subcommittee Chairman Henry B. Gonzalez (D-Tex.) called the hearings to look at the future of housing, and the panel has heard one gloomy assessment after another about the state of the real estate and construction industries and the ability of future generations to find decent, affordable housing.
Gonzalez said that while the administration is cutting the budget and credit programs as part of its effort to reduce inflation, the housing industries are suffering more and more failures.
"Those people in business you say should wait until interest rates come down are going out of business now," Gonzalez told Jordan.
St Germain and Gonzalez said they expected more ideas out of the CEA than they were getting.
Jordan said the President's Commission on Housing will make a preliminary report this month that is supposed to include more specific housing proposals. That report already has been fashioned basically, however, and its main thrust will be a reliance on free-market economics.
Jordan did argue against credit controls, saying, "No policy could be more ill-advised.
"All credit controls can do is reallocate credit among borrowers in some way other than the market would have done," he argued. Interest ceilings reduce the cost of funds, but the average individual then can't get any funds at all, Jordan said.