Putting People Back to Work Through Rehabbing and Renting Foreclosures
Our goal in this series is to offer job creation ideas that can fit squarely within the fiscal bounds of the political climate today in Washington. Some of our ideas will require additional federal spending but all of our proposals are well within the financial means of the federal government. Others don’t cost anything. All would create jobs.
And jobs are sorely needed. The U.S. economy has gained more than 1.1 million jobs since the labor market hit bottom in September 2010. Yet we still have almost 7 million fewer jobs than when the recession started in December 2007. In 2009 we laid out a set of initiatives that would generate strong job creation. But after taking aggressive action in 2009 to end the Great Recession and start the economy growing anew, policymakers in Washington today are unwilling to embrace major job creation initiatives.
This week, Center for American Progress Housing Policy Advisor Alon Cohen and Economic Policy Analyst Jordan Eizenga present an idea to create jobs by retrofitting and renting out foreclosed homes that are currently on the books of the federal government.
The federal government is holding a significant number of foreclosed properties from mortgages it guaranteed before the housing bubble burst. The weak housing market would surely yield depressed prices if the government were to sell off these properties en masse. So what should we do with our growing stock of foreclosed homes? And can we put Americans back to work in the process?
Here’s what we propose: Institutions that hold tens or hundreds of thousands of these properties—both private institutions and those backed by the government, such as Fannie Mae, Freddie Mac, and the Federal Housing Administration, or FHA—should rehabilitate, retrofit, weatherize, and rent them or sell them to investors. The resulting pools of properties—most of which are currently vacant, incurring costs, and providing no return—can generate rental income for these institutions or private investors with modest investment.
Doing so will help stabilize home prices and put people back to work—an important outcome with unemployment at 9.2 percent.
“Scattered site rental”
At present, Fannie Mae, Freddie Mac, and the FHA hold approximately 290,000 foreclosed properties or more than half of the inventory of foreclosed homes in the country. It seems likely that number will grow as many homes are just entering or have yet to complete the foreclosure process (part of the “shadow inventory” of homes). These three institutions therefore may be the best place to start this initiative.
The idea we propose here is called “scattered site rental.” The term “scattered site” is meant to refer to a group of foreclosed homes that may be close to each other but do not share amenities or utilities the way an apartment complex does, for example.
The idea is simple: Find properties clustered in hard-hit areas such as Phoenix and Las Vegas, rehabilitate them, rent them out, and sell them as a group to private investors. Retrofitting and weatherizing these homes before renting them out provides value to taxpayers by reducing operating costs in the form of lower energy bills.
How it creates jobs
This proposal creates jobs in four ways.
First, scattered site rentals stabilize housing values, which will stabilize household wealth and the economy overall, and a more stable economy is more capable of creating jobs. With tight credit and employment markets, few have the ability or will to purchase a home, and the demand for rental housing has grown substantially. At the same time, large numbers of foreclosed properties are costing institutions money as they wait to be sold back into a housing market that they will only help depress further.
Scattered site rental addresses both issues. It takes these foreclosed properties off the market for a few years to help stabilize prices of homes that remain on the market while repopulating and renovating neighborhoods hardest hit by the foreclosure crisis with renters in affordable units.
Second, this proposal puts people to work by rehabilitating, retrofitting, and weatherizing homes—specifically construction workers whose industry was one of the hardest hit by the recession. These workers would be able to take their experience and training and put them to good use while retrofitting homes in ways that are more energy efficient.
Third, scattered site rentals will create medium-term jobs to maintain and monitor the large pool of rental properties. Currently, large institutions employ contractors to provide bare-bones upkeep to foreclosed properties—and then only sporadically. Scattered site rentals will build on this. They will provide an avenue for these companies to provide a greater level of service, increasing the number of employees and the quality of the labor involved over a longer period of time.
Fourth, in the long run, the increased availability of affordable rental housing should improve labor mobility and the ease with which the unemployed can move to find suitable work. Scattered site rentals should allow for more efficient matching between positions and qualified applicants by making it easier to move geographically to find better work.
Renting foreclosed homes poses some challenges in monitoring and maintaining these properties because they are separate and farther apart than units in an apartment building. But private investors, such as D.I.S. Partners in Texas and many other companies, have overcome this problem in multiple locations around the country.
Others have argued that large government private institutions shouldn’t be in the business of operating such properties. In fact, they already are. Fannie, Freddie, FHA, and every large private lending institution in the country already manage and maintain thousands of vacant foreclosed properties that are real estate owned, or REO. They hire contractors to provide a basic level of monitoring and service to keep properties secure and free from damage. Scattered site rental would simply be a matter of those institutions upgrading their contracted services to handle tenanted properties.
Scattered site rental will do a lot of good but it is not a panacea. These projects have requirements—geographic proximity, for example—that prevent them from completely satisfying the need to sell off foreclosed homes or the need for rental housing. Both are large enough that no one solution could address them completely. But there are tens of thousands of homes in which scattered site rental could provide both affordable housing and a healthy return on investment that simultaneously helps stabilize the housing market. The potential stock is certainly large enough to warrant the effort.
We have here a great opportunity to put people back to work, provide energy efficient housing, and stabilize home prices. We should jump on it.
Alon Cohen is a Housing Policy Advisor and Jordan Eizenga is an Economic Policy Analyst at American Progress.
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