Will The Federal Government Make A Good Landlord?

With hundreds of thousands of Americans defaulting on their mortgages, there’s been increased demand for rentals.

So while home prices are going down for the past four years, rent is going up.

Fannie Mae and Freddie Mac have thousands of empty foreclosed homes on their hands. If they’re unable to sell them quickly, would it make more sense to rent them out?

On the face of it, that seems like a good idea. But who’s going to run this rental program? Do Fannie and Freddie have any expertise in property management? Will they make good landlords? How much staff will they have to hire to become landlords?

I’m curious if these foreclosed would be rented out according to the dictates of the free market or would favored groups get special access? Just as they did to loans over the past 20 years as the federal government forced banks to lend to minorities with poor credit. As though credit was some kind of human right.

Banks are a rare business that can’t invest their funds as they see fit.

This renting idea sounds great, but if it were financially feasible, private investors would buy these foreclosed homes and rent them out. So why aren’t they doing this in significant numbers? Because the economics don’t work.

We still have not hit bottom in the housing market. Federal government intervention just decreases moral hazard so that people who bought more home than they can afford can get subsidies for their bad decisions.

I don’t expect home prices to turn around for at least three years and consequently I don’t expect significant new construction of homes for at least that long.

What am I missing?

If a home stays empty, it can go to hell. Plumbing tends to get messed up, particularly toilets. Costs go through the roof when you take over an abandoned home and get it ready to sell.

There’s a lot of praise to government for getting “creative” with this exploration. I fear that word. It usually means that government will try things and taxpayers will pay for it. If the private sector can’t make a go of such a scheme, how will government bureaucrats do it efficiently?

The Los Angeles Times reports:

With the real estate market continuing to drag down the economy, federal officials are seeking ideas from investors and others about ways to rent some of the nearly 250,000 foreclosed homes owned by government-controlled entities such as Fannie Mae.

The decision to solicit public comment came as the pace of foreclosures nationwide declined again last month, according to RealtyTrac Inc. in Irvine. The 4% drop in foreclosure filings from June, and 35% from a year earlier, was the 10th straight monthly decline.

Mortgage modification efforts and delays in processing foreclosure paperwork have eased the foreclosure problem somewhat, but the number of people losing their homes is expected to remain high for months, the firm said Wednesday.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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