Insightful article on housing policy posted in The Wall Street Journal. The article describes three ways to aid the housing market. They include:
• Financing investors willing to clear up the excess housing stock, especially in light of falling housing prices and increasing rental rates;
• Finalizing federal regulations for the housing market
• Reducing debt for troubled house owners
Question. Would it have been best for the Obama Administration to finance individuals and small companies that intend to clear excess inventory, turning them into rental properties?
President Obama’s home modification program targeted homeowners with the policy goal of keeping consumers in their homes. It’s questionable how much macroeconomic activity this policy has generated.
If, on the other hand, financing had gone to investors, individuals and entities with the resources to maintain distressed properties and rent them out, the renovations necessary for maintaining and preparing these properties for rent would have stimulated the ancillary activities we tend to find surrounding property, from landscaping to plumbing to electrical work.
The flow of capital and credit combined with a little job creation. Isn’t this what government should be about?
As someone who used to own rental property, I am not impressed with it as an investment. My experience was that cash flow and actual profits are not that wonderful, and that was in the 1980s/1990s when housing was actually appreciating. True, there is depreciation which reduces one’s income taxes, but in general the whole enterprise was not profitable for the amount of money invested. The advice I was given by one property manager about how to make money owning rental property was “buy it at 20% below market value, [so that you get instant appreciation when you buy, on paper, at least].” The problem at the present time is that it’s hard to know where “market value” is, since prices may or may not have hit bottom in all areas. The danger is that investors might still buy too high. Finding renters who can afford to rent could be a real problem under current market conditions. In my experience, the mortgage lenders, title companies, real estate agents, and various repair contractors (electrical, HVAC, plumbing, etc) make all the money–the owner doesn’t.
I know people who are currently renting condos because they can’t sell them. They barely get enough to pay the monthly mortgage let along make any money or cover other expenses. Believe me, there are always plenty of expenses.
A generous subsidy from the government might help this initially, but long term, the money is just not there.
Besides, the idea of the American dream is home ownership, not home “rentership.”