Glaeser is a libertarian economist who is one of the biggest experts on urban economics. Libertarians tend to blame government policies for problems and he is correct that they distort the housing market. I agree with him that these policies are bad, but I do not think they created the housing bubble. These policies have been around for decades without causing any problems. The question is what caused the bubble now and not some other time and there are other factors that seem more directly responsible.
"American housing policy has been monumentally foolish. We have used public resources to encourage ordinary Americans to bet all they could on highly risky housing markets. Fannie Mae and Freddie Mac, the home mortgage interest deduction, even the willingness to bail out financial firms that had lost too much on mortgages, can all be seen as policies that encourage ordinary people to risk it all on real estate.Less libertarian economists like Robert Schiller argue that free markets got out of control because of debt securitization and market failure in rating risk and that government regulation could help prevent this sort of problem. I think monetary policy also carries some blame (In hindsight, it looks like Greenspan kept interest rates too low).
I had once thought that these policies were misguided, but not terrible. We now know that encouraging buyers and lenders to bet on housing can impose vast costs on the country."
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