The dubious case for a 50-year mortgage

The article analyzes how US labor union structures, paradoxically weaker than European models, contribute to inflated public works construction costs by incentivizing specific job protection over broader economic efficiency. It also critically examines the proposal for 50-year mortgages as a solution for housing affordability, suggesting that while they could lower monthly payments, alternative policies like mortgage carry-over or increased tax-exempt gains on home sales might offer more fundamental benefits.

Analysis

The article highlights a significant disparity in public works project costs, noting US expenses are 5-10x higher than in Europe. This inefficiency is attributed to the distinct structure of US labor unions, which, unlike their Nordic counterparts where 90% of workers are covered by collective bargaining, prioritize specific job protection over broader economic growth. This leads to practices like featherbedding and resistance to automation, inflating construction expenses.

The current US union framework incentivizes lobbying for specific union jobs, even if it slows economic growth or increases project costs, rather than adapting to occupational shifts. This contrasts with European models where unions can support efficiency without fear of net job loss, suggesting that US high construction costs stem from unions being "too weak" in their ability to secure broad collective bargaining, forcing them to protect narrow interests.

The proposal for 50-year mortgages is critically examined as a solution for housing affordability, primarily appealing due to lower theoretical monthly payments. However, the analysis implies this may not be a fundamental solution, suggesting alternative policies such as mortgage carry-over or increased tax-exempt gains on home sales could offer more substantive benefits. The article maintains a cautious tone regarding the long-term efficacy of such extended mortgage terms.

Key Decisions for Investors

• Investors should monitor legislative developments regarding union reform and infrastructure spending given the identified cost inefficiencies in US public works projects.
• Evaluate the potential impact of long-term mortgage proposals (e.g., 50-year mortgages) on housing demand, affordability, and the credit risk profiles of mortgage lenders, considering the article's cautious assessment.
• Assess the political landscape for housing and infrastructure policies, as shifts towards alternative affordability solutions or union regulation could significantly alter market dynamics for related industries.