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If you think that middle-class homeownership as the default is a good thing, mortgage lending is the biggest pro-social things banks do*. The transfer from young to old is driven by housing scarcity - generous mortgage finance just determines how it plays out.
If we didn't have a mortgage finance system that allows desperate upper-middle-class youth to somehow-or-other scrape together enough money, then the Boomers would be selling out to investors who would become a new landed aristocracy. Given the less-generous mortgage system in the US post-2008, this is already happening at the low end of the market. (Hence the moral panic about corporate landlords buying SFHs - this is actually less harmful than individual landlords buying them, but easier to demagogue).
* In dollar terms, the mortgage bond market was traditionally bigger than the stock market. The recent run-up in the stock market means this is no longer true in terms of outstanding market cap, although the SpaceX IPO will mark the first and possibly only year when the stock market was bigger in terms of new issuance, which is a better measure of the impact finance is having on the real world.
This would only be true if more houses were being built. Since, as you say, there is housing scarcity, all the loans do is increase prices by subsidizing demand.
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Mortgage lending is important. But there's a distinction between lending for new builds to expand supply and foster development vs fuelling property bubbles and land speculation. It's not impossible to make houses cheaply - financial resources could be directed to replicate the postwar baby boom era of cheap housing and industrial development. That's how it happened in the first place, financial repression and capital controls. Credit was directed into creating new housing stock.
This doesn't happen naturally. It is often more profitable to buy houses in desirable areas since they're not making any more land. Elastic credit, inelastic supply - prices rise. It can be a lot 'safer' than lending to industry, from the perspective of the bank. If a business fails the money can be lost, whereas you can always repossess a house.
In 17 advanced economies, the share of mortgage loans in banks' total lending portfolios roughly doubled over the past century from 30% in 1900 to about 60% in 2014. More productive industrial investment has been crowded out.
It does happen naturally. It DID happen naturally. Well, sort of; the timing was partly because of relaxation of capital controls forbidding mortgage lenders from lending for development. But that relaxation happened because the time was right and the lobbyists were called in to remove the obstacle. The banks wanted to lend for development (because they could see the wave of demand coming), but were prevented, until they had the laws changed.
The banks also wanted to lend during the early-2000s bubble. After the bubble, housing has been durably repressed, but this isn't for lack of funds; the US is awash in funds. It's because the reaction to suburbia, the New Urban anti-sprawl smart-growth people, who had been on the back foot for a long time, were able to use the housing crash to get the upper hand politically, which they still have.
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