Keepin’ It Real Estate: Allocating Stimulus to Land Banks
This post first appeared on Minyanville.
After four years of searing pain, the US housing market is finally showing signs of life. And even as the causes and relative sustainability of this nascent “recovery” are being hotly debated, traditional buyers and investors alike are jumping into the market for homes with both feet.
It now appears that the biggest, baddest investor of them all, the one with infinitely deep pockets, is wading into the fray: Uncle Sam.
According to HousingWire, the US Department of Housing and Urban Development, or HUD, is giving state and local governments a total of $50 million to help deal with the onslaught of foreclosed homes, many of which lie vacant and blighted, ripe for vandalism, squatting, or worse. HUD has allocated chunks of cash to national development groups and local community organizations hoping to plug holes left by the private real estate investment market.
Funds are being distributed through the Neighborhood Stabilization Program which was established by former President George Bush in Economic Stimulus part one, which was then expanded by President Barack Obama earlier this year.
This investment directly into the real estate market highlights a new strategy in Washington’s fight against foreclosures, and one which is likely to grow in the coming years. That the federal government will increasingly be forced to take ownership — directly or indirectly through local organizations — is the subject of a recent piece I wrote on land banking for HousingWire, a mortgage and housing trade publication.
Land banks are publicly funded entities charged with taking ownership, rehabilitating, and putting back into use vacant or otherwise unwanted properties. The most well-known land bank in the country is run by Genesee County in Michigan, which is home to the woe begotten town of Flint.
Flint’s land banking initiatives began decades ago, as foreclosures and blight are not some new, post-housing bubble phenomenon. The program has gone a long way in providing Flint the chance at a future many of its Rust Belt neighbors can only dream of.
While as a loyal capitalist I loathe government meddling into the affairs of the private markets, to cry foul at bureaucrats for meddling in the housing market would redefine the old cliché of closing the barn door after the horses have left the barn. If taxpayer money is going to be heaped at our country’s ongoing housing nightmare, far better for it to go to community redevelopment than to the reckless inflation of the balance sheets, earnings, and salaries of the likes of JP Morgan Chase (JPM), Wells Fargo (WFC), Bank of America (BAC) and Citigroup (C).
Initiatives like the recent allocation of money from HUD down to the local level do not represent some silver bullet to fix our housing woes, but seek to address some of the harsh realities of what, for most, is a foreclosure epidemic that plays itself out on CNBC and flashy websites like RealtyTrac or Foreclosure Radar: It just doesn’t seem real.
But drive through Oakland, California, Cape Coral, Florida, or Detroit and foreclosures aren’t just another statistic that evidences our dire economic situation. Foreclosures destroy neighborhoods, rip apart families, and set back years of what were otherwise positive improvements in some of the country’s most impoverished communities.
Real estate investors are reticent to put money to work in many of these areas because the risks simply don’t justify the rewards. Banks ignore many of these homes, abandoning the fight against looters and squatters, leaving the problems up to local police who are then dragged away from their regular beats. This isn’t a situation that benefits anyone.
It is, however, one of the uses for taxpayer money that can be reasonably justified. The list of government programs about which that cannot be said is far, far too long to list — and growing.
$50 million doesn’t even approach a drop in the bucket compared to what has already been spent bailing out AIG (AIG), Fannie Mae (FNM), Freddie Mac (FRE), General Motors (GM), Chrysler, Bank of America, Citigroup, and countless other, smaller firms that only now exist because taxpayers ponied up our hard-earned cash, whether we wanted to or not.
This $50 million is only the beginning. Lurking beneath the headlines of what many believe to be a respite from the Great Recession are neighborhoods with no hope of a recovery. The land banks, indeed, cometh.