Wednesday, March 10, 2010

Government rehabs and rentals?

Climate Progress posted an interesting piece on March 3 proposing a more active government approach to the current housing crisis/foreclosure situation. Andrew Jakabovics suggested the FHA directly take over more homes, do energy-efficient “green” rehabs, fill them with renters and then market them to real estate investors as “portfolios” of grouped properties.

This approach is backwards and wasteful for several reasons. The intended market is investors that are highly skeptical of the government. They are currently buying at foreclosure auctions for pennies on the dollar and getting good rents after fast and cheap rehabs. The work gets done quickly and at a discount because so many skilled construction workers are available, no longer employed on new construction. Most investors would not pay a premium retail price for a “green” rehab, especially if the work was done by the government. Investors usually also have a ready pool of renters on tap and often don’t like to buy properties with tenants already in place. And most investors are small and would not be interested in multiple properties at one time.

The idea is sound in a modified form. Government “green” credits to investors that upgraded properties to “green” standards would have much more appeal to the investors. They could buy their own materials, use their own contractors and supply their own renters without government interference as long as everything met agreed upon standards. The properties would return to the market more quickly and more cheaply than the FHA could manage. Investors would have more valuable and marketable properties than without the government “green” credits.

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