Drawing Parallels: The Housing and College Markets

by Daniel L. Bennett

In a paper that he wrote in 2008, my colleague Andrew Gillen made an interesting parallel between the housing bubble that had just burst and the rapid tuition inflation that has occurred in higher education. Gillen wrote that

tuition increases are largely due to the unique characteristics of the market for higher education that were discussed previously—dominated by organizations that do not seek to maximize profits and that have no measure of output, which is needed for normal price competition. This does not, however, discredit the notion that low interest rates and a lack of lending standards exacerbate the situation. It is unlikely that speculators would have flocked into real estate had the low interest rates and lax lending standards not made the returns look attractive in the first place. It is also unlikely that tuition could have increased by anywhere near as much as it has unless the government continually increased the availability and size of subsidies for higher education, particularly guaranteed student loans.

I came across an interesting article on CNBC today that discussed the idea of homeownership as an American right:

The government appears to say yes.

We know how we got here, and we know what happened when home ownership went completely haywire. Now the politicians are calling for "responsible" home ownership, and yet government continues to pour billions of dollars into programs and incentives that push more borrowers into homes that may not be the best fit.

Today's housing market is so out of whack with the usual fundamentals and, let's face it, the historical attitudes toward home ownership have been turned on our collective American heads.

...the future of housing, of home ownership, needs to reinvent itself without artificial stimuli.

Americans have to get back to basics, and by basics I mean affordability, responsibility, and plain common sense.

Here again, the condition in the housing market is parallel to the higher ed market, as Gillen argues. If we substitute the term "higher education" for the terms "home ownership" and "housing", and "colleges" for "homes", then we arrive at a conclusion that accurately describes the current state of higher education in the U.S.

Is higher education an American right?

The government appears to say yes.

We know how we got here, and we know what happened when higher education went completely haywire. Now the politicians are calling for "responsible" higher education, and yet government continues to pour billions of dollars into programs and incentives that push more borrowers into colleges that may not be the best fit.

Today's higher education market is so out of whack with the usual fundamentals and, let's face it, the historical attitudes toward higher education have been turned on our collective American heads.

...the future of higher education needs to reinvent itself without artificial stimuli.

Americans have to get back to basics, and by basics I mean affordability, responsibility, and plain common sense.

Some members of the higher ed establishment may disagree with this assessment, but then again, Fannie Mae, Freddie Mac and their most influential Congressional cheerleader, Barney Frank, have also disagreed with the assertion that the government's subsidization of the housing market was responsible for the housing bubble that eventually burst.