"Or, we can re-engage private investment in the game."
Fortunately, we're hearing rumbles out of Washington that the experts are thinking along the same lines.
"The Obama administration is seeking ideas from investors on how to convert thousands of foreclosed properties owned by government-backed entities into rental homes, administration officials said.
The Federal Housing Finance Agency, the regulator of Fannie Mae and Freddie Mac, will be joined by the Treasury Department and the Department of Housing and Urban Development in soliciting proposals, said the officials, who requested anonymity because they were not authorized to speak publicly in advance of an announcement planned for later today. ...
Encouraging investors to buy foreclosed homes in bulk would help shrink the U.S. housing surplus, stabilize property prices and provide affordable rentals, Morgan Stanley housing analysts said in a report Aug. 8.
The collapse of the U.S. residential real estate market triggered the recession in 2007 and has stifled an economic recovery, according to the Morgan Stanley study. Incentives such as tax breaks and eased lending terms are needed to encourage more investors to purchase repossessed homes, repair them, and rent the properties at affordable rates to people who can’t afford to buy a house, analysts led by Oliver Chang wrote.
“What’s important to do is help clear the backlog as quickly as possible with as little detriment to home prices as possible,” Chang, head of housing strategy in Morgan Stanley’s research division, said in a telephone interview Aug. 8. “The goal here isn’t to help investors. The goal is to provide quality affordable housing.” - The Washington Post, 8-10-11Well, since they are looking for ideas, here's one: It's called by its author The Simple Solution.
How would it work?
"The Simple Solution proposes a tax credit for any buyer willing to buy any residential property for investment or personal residence that is..."empty”. Empties are properties in one of four phases of financial difficulty:What would the Simple Solution cause to happen?
1) 90 Days past due on payments to mortgage holder2) In the process of being foreclosed upon3) Foreclosed and vacant4) A “walk away” would be those people who simply have returned the property to the lender and vacated the premises.The tax credit would be 20% of the sale price. The time period for eligibility would be one year. The credit would be amortized over five years in consideration of budget difficulties. There would be no limit on the number of houses available to each buyer."
- The nation's "housing overhang", referred to in the Washington Post article above as the source of downward pressure on the housing market, would be mostly or completely eliminated within the one-year time frame of the program.
- The value of synthetic real estate investment vehicles that are held by the nation's top banks would turn around as the empty housing inventory firms up national prices. This is a good thing...remember "When fall the banks of England..." ?
- Investors and potential home owners would have their confidence restored in housing as a safe investment.
- The huge housing industry work force, most of whom are currently out of work, would slowly but surely be re-employed as empty housing disappears and new investment drives construction back to normal levels.
- Domestic GDP and consumption will return to normal levels.
The biggest hurdle to The Simple Solution seems to be a political one, as demonstrated by the last quote in the Washington Post article above. We've been so conditioned against "tax breaks for the rich" that any tax proposal that has the faintest smell of potential profits is automatically a target for demonization.
I can remember when making money was a good thing.
Additional thoughts on The Simple Solution in the next post...