For a couple of years (literally – back as far as Nov. 2008), 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.
To refresh your memory, here’s the plan I advocated.
- 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.
I argued that 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.
Well, BusinessWeek reports that “the dealmakers running America’s private equity firms see opportunity in one of the most distressed precincts of the U.S. economy: residential housing”
Buyout funds are raising billions to convert foreclosed homes into rentals, which Washington hopes will improve the housing market
For example:
- GTIS Partners will spend $1 billion by 2016 acquiring single-family homes to manage as rentals
- GI Partners, a Menlo Park (Calif.) private equity fund, expects to invest $1 billion
- Los Angeles-based Oaktree Capital Management will spend $450 million on similar housing deals.
- Cerberus Capital Management, (DB)Deutsche Bank, (FIG)Fortress Investment Group, and Starwood Capital Group sponded to an Administration request for proposals on how to dispose of the government’s inventory of foreclosed homes.
Some pundits say: “This will be a new institutional asset class in the next 24 months.”
Why the enthusiasm?
- Obviously, low prices and high demand for rentals make the market intriguing.
- About 7.5 million homes with a market value of $1 trillion will be liquidated through foreclosures or other distressed sales by 2016.
- “The share of Americans who are willing and able to own their own home is still falling,”
- 20 million single-family homes are already serving as rentals
- Single-family home rentals — which have yielded annual returns averaging 8.1 percent since 1990 — can generate cash flows that are 3 percentage points higher than apartments.
- The U.S. government is eager to clear out the foreclosed properties now on its books.
Hmmm.
Imagine if there was a tax incentive … and imagine if the program had been in place for a couple of years …
Oh, well.
The Homa Files 