The solution to the lack of growth in the housing market could never come from changing the lending rules. It has to come from a proper reorganization of the relationship between government and the labor market itself.
Let me spell this out. The labor market is a market that is currently structured with a deliberate built in inefficiency. A minimum wage is established by fiat that is arbitrary, but makes it impossible for a lot of useful activity to work around the edges and promotes the existence of a large cadre of idle workers who are in no position to support debt.
Grant that individuals who are limited by health or other issues cannot work and must become wards of the state.
Everyone else is available to do either light or heavy work at minimum wage with a premium provided for heavy work.
This work is provided by the state automatically the moment that an individual is laid off from other work. This is not work fare. It is temporary to even permanent work provided by the state at minimum wage to pursue goals understood to serve the common good. A classic example is tree planting and historically waste cleanup got a lot of attention. Once the government knew it was in the business of deploying temporary human capital, it could get very good at it.
Most importantly, the minimum wage is tied directly to the monthly cost of supporting the standard mortgage on say five hundred feet of living space per earner with the appropriate multipliers.
This makes every working person a qualified buyer of a home or condo and the linkage between this wage and measured cost of built space will make it hard for the system to become distorted. If housing prices drop then wages drop, attracting more buyers and more demand for the workers and the opposite is also true.
By linking this wage directly to the capital cost of space and thus directly to the real cost of producing that space, we have created a firm floor for both the housing industry and the labor market that should result in home ownership maximizing and producing a compensatory increase in tax revenue since everyone is either working or living off his savings.
Quite simply we make the customers good so that the banks can do what they do best. This may not sound like a scheme that is revenue neutral but I suspect that it can be fairly quickly once we learn how to properly deploy the temporary labour pool to proper economic effect.
It could turn out that many folks enjoy working on farm projects and that then permits farm operators to entertain value added enterprises that requires the availability of labour.
We will be surprised at what we want to do once labor is readily available for normally labor intensive tasks.
By establishing a real floor for the labor market, mobility will naturally improve, unwilling unemployment will disappear and an efficient job brokering system will also emerge.
And since everyone qualifies fairly quickly to have a mortgage, home ownership should approach ninety percent which is the objective.