Private capital being unleashed on the residential housing market …. finally!

Way back in November 2008 —  in a post titled:  “Big Idea: Rallying private capital to stabilize housing prices.”  — I proposed a plan to resuscitate the residential housing market.

The essence of the plan (in 2008) was to:

  1. Eliminate ALL of the capital gains taxes on residential property that is bought from now until, say, December 31, 2010 and held for at least 18 months,
  2. Allow these “qualified residential properties”, if they are rented, to be depreciated for tax purposes at an aggressively accelerated rate (say, over 5 or 10 years) to generate high non-cash tax losses, and
  3. Allow ALL tax losses generated by these “qualified residential rental properties” to offset owners’ taxable ordinary income with no “passive loss’ limitations, thereby reducing their federal income tax liability.

At the time, I said “the positive results are practically guaranteed”.

Well, almost 4 years later, look what’s happening — even without the bold strokes that I suggested.

The NY Times reports that “Investors Are Looking to Buy Homes by the Thousands”.

Some deep-pocketed investors are betting that the residential real estate market is poised to explode.

With home prices down more than a third from their peak and the market swamped with foreclosures, large investors are salivating at the opportunity to buy perhaps thousands of homes at deep discounts and fill them with tenants.

There are close to 650,000 foreclosed properties sitting on the books of lenders.

An additional 710,000 are in the foreclosure process, and about 3.25 million borrowers are delinquent on their loans and in danger of losing their homes.

With so many families displaced from their homes by foreclosure, rental demand is rising. Others who might previously have bought are now unable to qualify for loans.

Investors believe the rental income can deliver returns well above those offered by Treasury securities or stock dividends.

At the same time, economists say, they could help areas hardest hit by the housing crash reach a bottom of the market.

Imagine if the movement had started 4 years ago.

And, imagine if the movement was boosted with the tax incentives,

It’s late, but not too late.

As I said before; “the positive results are practically guaranteed”.

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