Tracing consequences both seen and unseen.
Christine HarbinUnintended Negative Consequences of ‘Extreme Makeover’
Posted at 8:44 pm on April 6, 2010, by Christine Harbin

In an article published today, the Wall Street Journal describes some unintended negative consequences of the television show Extreme Home Makeover.

(1). They can’t afford to maintain the house.

From the article:

Homeowners struggle to keep up with their expensive new digs. In many cases, the bigger, more lavish homes have come with bigger, more lavish utility bills. And bigger tax assessments. Some homeowners have tapped the equity of their super-sized homes only to fall behind on the higher mortgage payments.

There are two big reasons why the people who qualify to be on shows like Extreme Home Makeover are not suited for owning a McMansion. First, these people already have a limited income, if any, and they can’t afford the increased operational costs and taxes that are associated with living in such a large home. Second, these people get into trouble (e.g., they lose their jobs, they get sick, they take out home equity loans they can’t pay back), and can’t afford to keep the houses that they were given on the show.

(2) They can’t resell the house.

Again, from the article:

[B]ecause Extreme Makeovers tend to be big, fancy residences plopped into working-class or rural communities, the houses can be a hard sell.

The situation is a veritable catch-22 — people who are working-class can’t afford to buy and live in the McMansion, and people who could afford to buy and live in the home would be disinterested in living in a working-class neighborhood.

Tangentially, I also like the following post by Billy Quirk in the comments section following the article:

I wonder what most families on the show did after the camera crews left? Had these families been given $200k or $300k instead of a McMansion, do you think they would have chosen to invest it all in indoor carousel and a backyard village for the kids?

My answer is, “probably not.” Being placed in a luxury home is not going to solve these people’s problems. It’s simply increasing their level of consumption, which will exacerbate their existing financial problems. They would benefit more from starting an education fund for their children, catching up on the mortgage of their current home, finding steady employment, etc. Instead of placing people in a gigantic house that they can’t afford, maybe the show could teach people basic skills about how to maximize their utility with what they already have.

Hat tip to Alex Tabarrok at Marginal Revolution.

Filed under: Unintended Consequences
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Henry Hazlitt"[T]he whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups."
Henry Hazlitt, Economics in One Lesson






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