So what did cause the housing bubble? The media are an bunch of idiots - biased idiots, at that - and so you have to ignore them. The Antiplanner has a different take, and you need to read the whole thing:
It was Progressive SWPL policies wot dun it. Like I said, RTWT, but how can artificially restricting the supply of Real Estate have any other effect than bidding up the price of land? Supply/demand, anyone? Only a Harvard Law Review president could be surprised that prices went up like a rocket.
As the Antiplanner noted in recent posts, a lot of factors contributed to the recent housing bubble and subsequent financial crisis. But only two factors were so crucial that, without them, the crisis would not have happened.
The two crucial factors were growth-management planning and inadequate ratings of financial risk. Growth-management planning–urban-growth boundaries, greenbelts, growth limits, and other policies aimed at controlling where or how fast regions grow–had three major effects on the economy.
For a while.
Why, in all the millions of column-inches of printer's ink spilled on this crisis, have we not read about incompetence at the SEC? Oh, I remember - all Bad Things happen because of evil Rethuglicans, and you should never let a crisis go to waste - especially when a bunch of Columbia J-School types can get some swell high paying jobs working as press aides for various Democratic congressional types. Or the SEC.
Most of the narratives of the financial crisis make it clear that, at many critical points in the growth of the housing bubble, the problems could have been avoided by more accurate ratings. Better ratings would have both reduced the size of the bubble (by forcing tighter credit and reducing speculation) and contained its effects on the rest of the economy (by keeping major banks and other financial institutions from being exposed to declining housing prices).
As the Antiplanner previously noted, the ratings agencies probably would have done a more responsible job if they were working for bond buyers rather than sellers. That was the case before the Securities and Exchange Commission effectively turned the agencies into a legal oligopoly. Introducing more competition into the ratings business is one way to avoid these problems in the future.
This is a must-read post, and I don't say that very often.