Introduction
The citizens of English-speaking countries are more obsessed with the idea of obtaining property. Since early childhood, people are taught how to benefit and succeed in the game of property. The majority of people assume that investment is the best way to spend money and the safest one. For a long time, the mortgage was the most common and substantial source of the budget for a new business. In the financial world, it is considered that lending to people with property is safe and banks didn’t restrain the citizens from borrowing money for property purchase. In the USA since the second half of the 20th century, the mortgage debt increased over fifty times.
Main body
During the English history, only aristocrats could be homeowners and only they had the right to vote. This coterie made the first step taken towards the establishment of the property-owning democracy. The political power of aristocracy decreased as they faced economic decline and started to misuse and exceed budgets.
The necessity to purchase property is imposed by governmental policies and commercialized culture. The long-term and low-interest mortgages appeared as the Roosevelt’s administration tried to improve the situation in the market. For the government, mortgage investments seemed even safer, and the idea of the goodness of homeownership was widely promoted. This idea was also opposed to the Communist concept of “a society in which there would be no private property” (Ferguson, 2008).
Nevertheless, inequality in federal lending took place in the USA. In1941 Detroit was divided into two parts: one part with black citizens, and another one with mainly white citizens. The loans were provided only in the white part of the city. These financial tensions were a background of the struggle for Civil Rights.
As a political response to the situation, banks couldn’t refuse to lend to poorer social groups. The FNMA was divided into several departments: the Government National Mortgage Association and the government sponsored enterprise.
During the post-war period, the British government’s concern was the provision and subsidizing of houses for the working class. Since 1959, 400,000 cheap houses a year were built in five years, and fifteen years later almost half of them were occupied by owners.
At the same time with the expansion of the mortgage terms and reduction of the interest payments, the property prices increased both in the USA and England. And it contradicted the politicians’ statements. The increased prices led to increased interest payments as the result.
In the chapter “Safe as houses”, the reality of the estate market is exposed. Though most people assume that property investments are reliable, safe, and profitable, there are the facts that say against it. Three main factors make the property assets less profitable: depreciation, liquidity, and volatility (Ferguson, 2008). Property is prone to rapid change even more than other capital markets. The property market is unstable, and thus it cannot be safe.
Throughout the history, the housing game was used to manipulate the economy. So-called property-owning democracy caused social inequality, discrimination, circumventions, and financial abuse many times. Even though the governments tried to recover and improve the economy by promoting the idea of the importance of house-owning and changing the rules of lending, it provoked multiple crises. It is especially well traced on the example of Detroit, where the poor people were deprived of the right of property ownership.
Conclusion
Many institutions suffered crises due to tremendous mortgage debts, which were initiated by FNMA. The governmental sponsorship is required to cover these debts, which ultimately leads to governmental ownership. The situation depicts that the estate market is as risky as any other kind of capital market, especially in the current financial and political conditions that do not guarantee safety and stability.
References
Ferguson, N. (2008). The ascent of money: A financial history of the world. New York, NY: The Penguin Press.