Peter Orszag, formerly the head of OMB for Obama and now the vice chairman of global banking at Citigroup Inc, offers an interesting look at the problems in the housing market in a piece at Bloomberg, and posits an even more interesting solution:
One thing the Obama administration could do now — probably with Republican support — would be to attack the oversupply of housing stock by allowing a tax write-off for investors who buy empty properties and rent them out.
To understand why this would help, consider that the problems in the residential real-estate sector have two dimensions. First, we have an excess supply of owner- occupied housing, which puts downward pressure on prices. Second, millions of American households now have negative equity in their homes. Dealing with excess inventory by shifting vacant properties into the rental market would help to stabilize prices and thereby mitigate, to some degree, the negative-equity issue — although additional action would also be warranted to attack such “underwater” situations.
I call this an “interesting” look and solution, not for what Orszag says, but what he doesn’t say.
There’s a third dimension to the problems in the residential real estate sector: the very large number of bank-owned properties, known in the lingo as “REO’s” -” real estate owned” by the banks and NOT occupied by the owner. Of course, if he’d mentioned that excess supply element of the market mess, he’d have to also mention that he and his colleagues at Citigroup Inc. would stand to benefit in a very large way from the tax policy he proposes here.
Peter doesn’t want to go there, and he certainly doesn’t want his readers to go there either. Pay no attention to those banksters behind the curtain.
Banks currently have a *huge* pile of REOs, with many more in the foreclosure pipeline. Per Calculated Risk, foreclosure starts were up 20% in August (over July), as banks seem to be gearing up for more seizures.
The big question for banks like Orszag’s Citigroup then becomes “what do we do with all that property?” For them, these are “non-performing assets” that have value but produce no revenue and in fact will even cost them money to maintain like mowing the lawn, paying the taxes, etc. Repairs and such make them even more expensive to hold.
Orszag and his counterparts at other banks want to increase the value of these REOs to potential investors who can then rent them out, so that banks can clear their books. That’s what he’s after here. He wants to boost the market value of the REOs so that they come at least a little closer to the fictional book value the banks show on their balance sheets. With more REOs in the pipeline, that will only serve to drive the overall prices down, and that’s a nightmare for Orszag and his friends.
BofA would LOVE something like this. More than anything short of a 50 state get-out-of-jail-free settlement to the foreclosure fraud cases, this would help them start to climb out of a very, very deep hole. Maybe not all the way out, but it would help them a lot. Homeowners and renters, OTOH, not so much.
But then again, that’s not the point of this policy from Orszag. It’s all about the banksters. And really, isn’t it always all about the banksters for the banksters?
(h/t Tbogg for the helpful reminder of the Wall Street mentality — do go read the comments from Tbogg’s readers)