CATHERINE RAMPELL

Dollars to doughnuts.

Once upon a time, housing looked like a rare, highly valued asset; now, the market has been flooded with unwanted homes. And as I wrote in an article Sunday, economic forces have helped reallocate those excess houses to more productive (and non-residential) uses, like a park, work of art or marijuana garden.

In the course of reporting for this article, I realized that today’s housing problems are not terribly dissimilar from the last time one of pillars of the economy faced sudden devaluation: its labor force, right after World War II.

During the war, able-bodied workers were in short supply relative to the output required to keep the country functioning and pumping out tanks and munitions. To lure more women into the labor market, employers raised wages and the government popularized “Rosie the Riveter.”

Then the war ended. Millions of soldiers flooded back into an economy that had been restructured to operate almost entirely without them. Politicians feared that the markets would again be overwhelmed with excess labor and the Great Depression would resume.

But just as governments are bulldozing away excess housing today, after World War II the government removed some of the surplus labor from the market then as well. It did so through two channels — one for women, and one for men.

To avoid having a glut of labor, Rosie the Riveter was sent back into the kitchen.

“First there was propaganda to get women out of the home, and then came the propaganda to get women back in the home,” said Lawrence Katz, an economics professor at Harvard who has written about postwar labor markets. Many employers also laid off their female employees to make room for the returning troops, he said.

If the women were re-domesticated, the men were instead educated.

Returning soldiers were offered a free college or technical education by the G.I. Bill – an offer that also happened to delay their entry into the labor force.

“It was a payment for their service, but it was also to keep them from going out and looking for jobs,” said Professor Katz.

There was indeed a brief recession in 1945 as war production unwound, but unemployment managed to stay astoundingly low in the postwar years. Reducing the supply of labor wasn’t the only reason workers escaped devaluation on the scale seen in the recent housing bust; there was also a major postwar increase in demand for workers.

Pent-up demand for products that were rationed during the war and construction for newly forming families also created a lot of new jobs for returning soldiers. (It helped that the United States was the only major developed country whose capital stock hadn’t been bombed out, of course.)

The government bolstered demand for workers too, by creating lots of labor-intensive post-war infrastructure projects.

So what lessons do those policies offer for today’s housing market?

Now, as then, the government has two main ways to stabilize the market (assuming politicians want price declines to stop, and they may not). Government policy can either reduce supply or increase demand — or do both at once, as it did after World War II.

Reducing supply in the housing market means bulldozing more homes or otherwise assigning them to other uses (or at least rezoning houses so that the private sector can assign the buildings to other uses). State and local governments across the country have already begun this strategy.

Increasing demand for homes, on the other hand, is a bit trickier.

One possibility is to increase the population of the United States. Accordingly, Senators Chuck Schumer and Mike Lee have introduced a bill offering residential visas to any immigrants who buy housing in the United States.

There are many opponents to this idea, thanks to fears that bringing in more foreign homeowners means also expanding the oversupply of workers that we have today. (Many economists disagree with this assessment, but that’s a whole other can of worms.)

The United States may not even need more people to move here to absorb excess homes. Maybe all it needs is for its existing population to change its family arrangements.

Household formation has slowed dramatically since the recession began. Over a million homes that should have been formed in the last few years – at least, given demographics — weren’t, according to Mark Zandi of Moody’s Analytics. That’s approximately equal to the country’s current surplus of vacant homes.

Household formation is slowing not because the population is shrinking, but because cash-strapped families are doubling up and unemployed recent college graduates remain tethered to their parents’ couches.

An implication is that to fix the housing market, the government should be promoting job growth, which will enable crammed families to peel off from one another. Now, as in the postwar decade, employment and housing remain inextricably linked.

Article source: http://feeds.nytimes.com/click.phdo?i=1fe56691c9baecf524492543bb98ef2d