Posts Tagged ‘private capital’

Whatever happened to the housing crisis? … Hint: It’s still there.

August 27, 2012

Remember the hysteria around dropping home values, slow real estate sales, and frenetic foreclosure rates?  All legit concerns.

May be my selective attention, but I don’t hear much about the housing crisis these days.

Maybe because deeply depressed prices have stopped sliding.

Maybe because all of the government’s silver-bullet programs have failed to move the needle.


Reality: still a big overhang from the housing bubble needs to be absorbed.

Here’s a rough calibration of the problem, based on the below Fed chart.

Before the bubble. people were putting about $450 billion per quarter into Private Residential Fixed Investment, i.e. houses.

Eyeballing the chart, during the period 2001 and 3009, PRFI averaged about $650 billion per quarter… about $200 billion per quarter over “normal”.

$200 billion times 36 quarters = $7.2 Trillion in excess … or “overhang”.

In the past 3 years, we’ve been running about $100 billion below the pre-bubble “normal” … in effect, absorbing about $1.2 trillion of the overhang (12 quarters times $100 billion).

Bottom line: still have over 80% of the bubble to absorb.



When the subject comes up again — and it will — remember to revisit my longstanding idea for unleashing private capital to buoy the housing market. It doesn’t cure the overhang problem, but provides some price relief and liquidity to the market.

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Unleashing private capital to stabilize the housing market … it’s happening !

February 8, 2012

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.

  1. Eliminate future capital gains taxes on any residential property bought in the next 2 years, and held for at least 3 years.
  2. Allow investors (i.e. landlords) who rent the properties to depreciate the properties on an aggressively accelerated basis (i.e. say, 5 years),
  3. 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.


Imagine if there was a tax incentive … and imagine if the program had been in place for a couple of years …

Oh, well.

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A couple of years late, Orzag jumps on the HomaFiles idea re: housing.

October 6, 2011

For a couple of years, I’ve been saying that private capital should be unleashed to stabilize the housing market.

How? Accelerated depreciation for residential  rental property with unabsorbed passive losses used to reduce ordinary income … and no capital gains on the property when sold – after a couple of years minimum holding period.

Well, well, well.

In a Bloomberg article “U.S. Can Rent Its Way Toward a Housing Recovery”,  Peter Orszag – Obama’s former budget guy – now proposes roughly the same idea.

Just a couple of years late.

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