February 13, 2009

Landlords to the rescue?

Obama says his administration will announces its home"owner" bailout package next week. Let me guess: the policy will formalize the rule, "Heads the real estate speculators win, tails the taxpayers lose."

Will we see a repudiation of the "American Dream" rhetoric, with its correlate that the racial gap in home ownership must be closed, that got us into this mess? Don't count on it.

A reader writes:
I would like to briefly offer an idea for solving our nation’s financial crisis.

The only assumption I make is that the underlying problem is an over-supply of houses, such that the market cannot clear at current (let alone 2006-7) prices.

There exists a group of people in this country who are uniquely qualified to solve the over-supply problem. They are called Landlords. They already own more than one piece of residential real estate, but they need to be persuaded to buy one or two more.

Currently, a rental property can be depreciated over 21 years. I suggest that the law be changed to 10 years (or whatever it takes) for a residential rental property purchased over the next 2 years.

Income from rental property is taxed as ordinary income. I suggest that the law be changed so that income from any residential rental property purchased over the next 2 years be taxed at a maximum rate of 10% (or whatever it takes).

Landlords may choose to let property at a rate that allows them to break-even over the short term in the hope of profiting when they sell the house in the long term. I suggest that the capital gains tax on residential rental property purchased over the next 2 years be reduced to 5% (or zero, or whatever it takes), whether the Landlord sells the property in 5 years or 50.

I believe that the entire cost of this scheme would be less than $100 billion, and it would be in tax revenues foregone. I also believe that it would arrest the downward spiral of residential real estate values by creating demand for the units at the margin that now exist.

I have no idea if these tax breaks for landlords would be necessary. But I would add that being a landlord is the kind of traditional Golden Years occupation in which the first wave of Baby Boomers, whose advanced guard turn 63 this years, could make themselves useful as they get to be too old to keep taking the 7am flight to Dallas. Older people tend to have good skills sets for being landlords.

An awful lot of the foreclosed housing stocks is in Sand State exurbs, which are places that tend to be more appealing for retirees than working people. Some of these hot climate exurban McMansions might rent for considerable sums from November through April to snowbirds from the North and from Canada, but wouldn't be worth keeping open in summer, so having a local landlord who can drop buy frequently and discourage criminals from breaking in and setting up meth labs would be handy.

America has a sumptuous housing stock at the moment, but houses decay fast if they fall into the wrong hands, so the chances of being able to leave it to the next generation are up for grabs. The right hands for preservation of housing stock are clearly long term owner-occupiers who can afford to keep them up. Since there aren't enough Jeffersonian sturdy yeomen for all the houses, however, I suspect that small-time local nosy landlords are the second best owners. They are a lot better owners than banks or fraudulent real estate speculators.

My published articles are archived at iSteve.com -- Steve Sailer

6 comments:

Anonymous said...

For some sand state exurbs, the solution is indeed to have landlords buy up multiple houses

For example, Temecula is a pleasant enough place,

but the nearest decent jobs are an hour drive from Temecula. The one thousand homes for sale in Temecula right now won't find buyers among working age folks.

but it is quite logical for a retiree to buy 20 of the houses for $60 thousand each and rent them out to people fleeing the cold northern winters.

If you go on realtor dot come you will see that the cheapest houses are 120 thousand dollars each right now, so the houses may have to fall by 50% before they are attractive enough to buy


On the other hand, Palmdale and Lancaster also have plenty of empty homes. Palmdale and Lancaster have such high crime rates that I doubt you will be able to attract retirees as renters - at any price.

Seems to me that the only solution for Palmdale and Lancaster is to build prisons there and then have the prison guards live in the houses

My point is that as the recession wears on and crime rates go up, many of these exurbs will go the way of Palmdale and Lancaster and effectively be uninhabitable

Anonymous said...

I was just talking to a guy at work, retiring this year, and he and his wife are going to Phoenix for the Valentines Day weekend to by a house. They plan to live there about 3 weeks of the year max and let friends and family stay whenever for next to nothing. The interesting part was that the house prices in Arizona are about half of those in a mill town in north central British Columbia. So we sat an dfigured it out that between the two of us, we could buy three houses each, still own our homes in Canada and never see a snowflake again. The downfall of the whole plan of course was where would you find renters to fill the empty houses and why would anyone want to be a landlord. A quick survey of listings between 100 and 150 thousand US showed at least 10,000 units for sale in the state. Housing glut seems a paltry analysis of the acutality but my oh my it is a buyers market.

AllanF said...

And of course such a sensible plan will never fly because there is not an organized vested interest to lobby/pay for it's passing through Congress.

Who, whom.

Anonymous said...

The federal juggernaut's most likely solution to the "problem" of too many houses will be to bring in more immigrants...

Anonymous said...

"he and his wife are going to Phoenix for the Valentines Day weekend to by a house..........The interesting part was that the house prices in Arizona are about half of those in a mill town in north central British Columbia. So we sat an dfigured it out that between the two of us, we could buy three houses each, still own our homes in Canada and never see a snowflake again."

Phoenix, AZ now has the second highest kidnapping rate in the world, behind only Mexico City. Spend much time in Phoenix and "a snowflake" may not be the only thing you never see again.

D Flinchum

Gorewell said...

I don't think many snowbirds would be interested in exurban McMansions. A condo in Mesa or Palm Springs I can envision though.