Rhode Island senator Jack Reed (D) believes that the key to helping the housing market is for the U.S. government to become a landlord. For months now, Reed has been calling on Fannie Mae and Freddie Mac to rent out their massive, 250,000-strong inventory of foreclosed homes in order to “shrink the inventory of government-owned homes” and hopefully, in the process, diminish the glut of foreclosures on the market as well[1]. Now, Reed finally has some real support in the form of a call to action from the White House. The Obama administration has announced that the government-controlled GSEs should partner with private investors in order to make Reed’s proposed rental program a reality[2].
Currently, the president has simply said that the administration is “soliciting ideas” on how to put Reid’s concept into action. The end goal is to “turn the federal government’s inventory of foreclosed houses into rental properties that could be managed by private enterprises or sold in bulk”[3]. Previously, the idea of a landlord-government has been met with strong resistance. Do you think that this new addition to the proposal – that the government sell the rentals off – makes it more appealing? Do you trust the government to really stay out of the landlording business and let private investors in on the action?
Thank you for reading the Bryan Ellis Real Estate Letter!
Your comments and questions are welcomed below.
[1] http://www.bloomberg.com/news/2011-08-11/our-door-is-open-for-your-housing-ideas-the-ticker.html
[2] http://blogs.wpri.com/2011/08/11/white-house-swings-weight-behind-reeds-housing-proposal/
[3] http://www.nytimes.com/2011/08/11/business/us-seeks-to-rent-out-its-foreclosures.html
I think somebody ought to check the Constitution to see if this is even permitted! I do NOT like this push to make the government our landlord, our father figure and our source of income through unemployment insurance and welfare programs! This isn’t Europe where we go asking the government IF we can have an apartment, please, and how big? and where? I don’t like this at all, no sir, I don’t like it one little bit!
In order for the Real Estate market to recover who have to do something that will get a record inventory of vacant homes back to productive use. That means that someone has to go in and fix them and then rent them. If the government can figure out a way to partner with private enterprise many problems would be solved. The government should (like it did in the 1930′s) create a WPA to engage contractors in fixing the houses. The government could then list the properties to be rented (maybe even on a rent to own program?) and eventually (wihtin 2 years) sell them to REDUCE OUR NATIONAL DEBT????
I think that Reed’s proposal is one of the few bright ideas that have come out of Washington. We can’t decry the government for being dysfunctional when we, the people, don’t listen to the good ideas that come out of Washington. This one is a win/win/win.
There is nothing of any good sense about this idea! It is just more control of private markets, private businees by government bureacrats.
Comparing this to the WPA is interesting, one needs to look at the facts about the WPA and several other of Roosevelt’s programs, while they were popular with the left, they are a large part of the reason the Depression lasted as long as it did.
If one digs into the track record of other government housing projects, city, state or federal, this quickly becomes an idea we need to not just move away from, but run screaming away from!
Keep in mind much of the current housing issue and unemployment issues can be traced directly back to government intervention over the last 60 years. Those yelling about how it has been lack of regualtion causing this, really need to do some research and not listen to the idiotic talking points offered by politicians.
Do not you wonder why all of the programs in effect have costed so much money, and produced so little result?
When was the last time you wanted to get approval for a large project and said, “that permitting process was great, I loved spending months getting approval!”?
Went to DMV and said, “boy I want to spend all of my afternoons here!”?
The list goes on and on, call the IRS and ask a question about something, most of the time it will take over a week to receive a clear answer to your question!
The stimulus being a prime example, if the money would have been just mailed to all of the citizens of our country, the checks would have been in the thousands of dollars. Don’t you think you have some good ways to invest or spend that money?
If Fannie and Freddie are doing anything right, then why the investigations of them both? Why the huge sums of money paid to their top people and most of the underlings, with poor results according to the GAO? Why are the always asking for and receiving billions and billions more dollars?
If neither of these agencies can do their primary duties well, what on earth would make anyone think they could become property managers with any skill at all? How long does it take you to get a response back when attempting to purchase a home from them? How many hoops do you need to jump through and satisfy to purchase that house from them?
For myself I will not deal with them, too many other better deals out there to put up with their nonsense, and too many times when they lie about what is happening!
Honesty is not one of their policies!
So, get rid of this idea. Make it simple to purchase the houses from them, drop the price if needed, often they are overpriced for the market, and keep the government’s fingers out of our lives!
For those who like big government and care from cradle to grave,this may sound good on the surface, but it will be a mine field of regulations and red tape. My local government has tried to fix up and sell foreclosed houses. Two in one neighborhood have been on the market for 3 years! In our newspaper this week was a article about a program where government partnered with a nonprofit to fix up a house. The cost of acquisition and rehab was $130,000. The house was sold for $90,000; a 44 % loss. Only in America with our liberally biased media can this be portrayed as a victory. Government needs to stand back, stay out of our way and let the private sector fix this mess.
I don’t trust a government that keeps trying to step into the place of private enterprise. The current administration has a propensity to do just that. How many companies have they invested tax payer dollars into lately?
The federal government, through HUD, has been a landlord for a very long time. HUD runs countless low income housing units today throughout the United States. I would also point that many of the properties they run, I personally, would not want to live in. Furthermore, the skyline of New York City with all those vacant, burned out tenement houses stands as testament to HUD’s inability to manage anything effectively.
Many of the 250,000 homes in question are not in habitable condition and the U.S. tax payer investment necessary to make them rentable would be tens of billions of dollars. Then there is the cost to manage 250,000 rental properties (upkeep, collecting rents, paying taxes, insurance, etc. How many government bureaucrats are they going to need to hire for that? And who would do it, HUD?
Instead, they should create a program to support small businesses (investors) in buying up these properties, fixing them and getting them occupied. Whether they become rental units, leased with option to buy or sold outright, it doesn’t matter as long as they are occupied. At least that way, the government stays out of the way of private enterprise, saves billions of additional dollars for the U.S. Taxpayer and gets billions of dollars back into the GSEs coffers from the sale of all those properties.
Also don’t forget under the American Recovery Act, billions of dollars were allocated to the Neighborhood Stabilization Program. The purpose of this program is allowing communities to address the problem with grants from the government. However, only state and local government agencies or non-profits can become grantees. So, in general, only large developers who create a non-profit entity to become a grantee and large developers who hire out to the government agencies, who are grantees, benefit from the program. They are making very large sums for the cost of administering the program because of all the red tape involved, but they are making little progress in addressing a problem of this magnitude.
Having the federal government or a pseudo-government agency, become a landlord of these foreclosed homes is not a good answer to the problem. Helping small enterprises solve the problem while generating more tax revenue at the same makes much more sense to me.
At first blush this “seems” like a good idea. But stop and think for just a seconed. Excluding the U.S. Military, what has the government ever done that was right, it worked as advertised and it didn’t cost a fortune in tax payer money?
As someone else said, look at fannie and freddie for an example.
This is a horrible idea, but typical for the Democrats. It’s a chance for Obama to take over another part of the U.S. economy.
Obama has already taken over the automobile business, health care, and a significant part of the finance industry.
With governmental control of all these industries we can expect that our economy might never recover.
Gov’t oversight of anything is a disaster. What we have in DC are politians, not bankers, real estate professionals, or builders/contractors–except for very few. Their only agenda is re-election and not interested in any real help to the people.
What we don’t need is more beaurocracy with these properties and a program that sometimes might , maybe just maybe, work once in great while. What we as investors would receive; a pile of paperwork, a bunch of empty promises and most likely stuck with most of the bills, while the gov’t takes the credit, as they did for the so-called success of the loan mod programs. Sorry for the skepticism, but I am just tired of this admininstration trying to “fix” everything with gov’t.
So the best way to “shrink the inventory of government-owned homes” is to keep them in inventory and rent them out? Isn’t the best way to “shrink the inventory of government-owned homes” is to sell them? If the government ever decide to sell geographic portfolios in bite-size chunks of $50 million or so, please tell me. My partners and I will buy them all day long. Just keep the red tape in the can.
Cecil S.
Brian,
I definitely think this is a bad plan.
It’s one more thing our federal government should NOT be getting into.
If they want to get the ball rolling, start by providing financing for private investors to buy the properties in bulk.
To the politicians who think that by taking over a major segment of the US economy they will accomplish anything positive, I leave you (and others) with this thought:
The U.S. Postal Service was established in 1775. You corrupt morons have had 236 years to get it right and it is broke.
Social Security was established in 1935. You corrupt morons have had 76 years to get it right and it is broke.
Fannie Mae was established in 1938. You corrupt morons have had 73 years to get it right and it is broke.
The War on Poverty started in 1964. You corrupt morons have had 47 years to get it right; $1 trillion of our money is confiscated each year and transferred to “the poor” and they only want more.
Medicare and Medicaid were established in 1965. You corrupt morons have had 46 years to get it right and they are broke.
Freddie Mac was established in 1970. You corrupt morons have had 41 years to get it right and it is broke.
The Department of Energy was created in 1977 to lessen our dependence on foreign oil. It has ballooned to 16,000 employees with a budget of $24 billion a year and we import more oil than ever before. You corrupt morons had 34 years to get it right and it is an abysmal failure.
You corrupt morons have FAILED in every “government service” you have shoved down our throats while overspending our tax dollars.
AND NOW YOU WANT AMERICANS TO BELIEVE YOU CAN BE TRUSTED WITH A GOVERNMENT-RUN PROPERTY MANAGEMENT SYSTEM???
And to anybody OUTSIDE Washington who actually BELIEVES this idea will work:
You’re so high, you need clearance to land!
So lets see if I understand this one, Cut a deal with the people in the homes to pay a smaller amount while maintaining the home and stop any errosion to the local market values until they can sell…. and it took washington 3 years and how many billions to see this one? unbelievable
In 2007 when the real estate crisis started showing it’s beginning investors could still get 10 mortgages through Freddie Mac and Fannie Mae. During the credit crunch of 2008 the policy was changed to 4 mortgages. As forclosures started flooding the market investors hands were tied. I could not understand at that time why they didn’t increase to 15 or 20 to those with a good history of investing. If they had made that decision at that time we would already be out of this mess. The market would not have been flooded and home values would have
not dropped as far as they did. Also rent has increased because of the high demand, it would have stayed stable if investors could have purchased them and put them on the rental market.