- The Washington Times - Wednesday, October 27, 2010

ANALYSIS/OPINION:

The Washington Times editorialized on Monday that the Obama administration’s regulators were moving to interfere in the free market and restrict a new home financing scheme (“Housing regulators run amok,” Comment & Analysis). Before this action is dismissed as the heavy hand of government, let’s look more closely at this particular scheme.

Property rights are fundamental to our economic system and a key part of our liberty. Rights to property are usually encumbered with restrictions that relate to the property, such as utility rights-of-way, wetlands protections, a mortgage or a mechanic’s lien. Property values reflect these encumbrances.

But private transfer fees are a different type of encumbrance. Having to give 1 percent of the sale price of your home - 1 percent of your equity - to a disinterested third party each time the property is sold will clearly be viewed by the buyer as a burden without a benefit. Given that the 1 percent fee can be imposed any number of times, it strains credulity to suggest there is any connection between the fee and the cost of infrastructure.

If there is a market for property in these new developments, why does the financing have to be so creative? Didn’t we learn our lesson from creative financing of homes in the last housing boom? Maybe the motivation is more straightforward instead. Private transfer fees are a way for investors to get a 1 percent purchase price payout for 99 years without providing a benefit to the homeowner paying this fee - if there is anyone willing to buy a house with this encumbrance on their property rights.

ANDREW LANGER

President, the Institute for Liberty

Washington

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