For a couple of years (literally), I’ve been blogging that the key to stabilizing the housing market is incentivizing private capital (i.e. investors) to buy up distressed properties and rent them.
Finally, I found somebody who’s thinking on the same track.
Daniel Indiviglio of the Atlantic agrees that “Investors Can Fix the Housing Market”.
He says to “Stop Trying to Prevent Foreclosures — Mortgage Modifications Aren’t Working” and to “Ignore Consumers — They Can’t Fix This Problem”
The first point is a gimme.
Regarding consumers inability to fix the problem, he argues:
Remember that home buying credit?
Yeah, it didn’t work out so well. Home sales rose for about a year, then they plummeted and prices began to fall again.
The problem is that consumers aren’t in any position to fix the problem, so you just pulled forward a little bit of future demand.
Most people who can qualify for and afford to own a home already have one at this point.
To clear out housing inventory, you’ll need to rely on people who have cash to spend. Most Americans don’t.
The essence of his answer: make real estate investment tax-free for the next couple of years.
I agree.
To refresh your memory, here’s my plan.
- Eliminate future capital gains taxes on any residential property bought in the next 2 years, and held for at least 3 years.
- Allow investors (i.e. landlords) who rent the properties to depreciate the properties on an aggressively accelerated basis (i.e. say, 5 years),
- Allow any excess tax losses from renting to be applied to ordinary income.
The likely outcome: a massive inflow of private capital to buy residential properties, housing prices would be bid up, folks would have access to affordable rentals, and the economy would be stimulated … REALLY stimulated.
The Homa Files 
August 15, 2011 at 12:19 pm |
Have you really thought about this? If the borrower cannot pay $500 for his mortgage how will he pay $500 for rent?
Answer: home prices will still need to fall to match tenants economic reality.
You are advocating for a principal reduction, but in a manner than punishes the original buyer by loaning investors tax-payer money.
Immoral and it does not keep home prices from falling.
August 15, 2011 at 5:56 pm |
Why do investors need tax incentives to purchase rental properties? Wouldn’t they be driven by a lack of investment alternatives (0% interest rates) and naturally view real estate as a more attractive investment? Also, homeownership – when feasible given appropriate underwriting standards – is more productive for society than rentals because owners are incentivized to maintain their homes and neighborhoods to preserve long-term value.