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.