Our last patrician president, George Herbert Walker Bush, once famously discovered that supermarkets had new-fangled cash registers that scanned prices. His patrician son evidently has also spent too much time shuttling between the White House and his faux ranch in Texas, flying over neighborhoods with forests of foreclosure signs without a clue to the devastation wrought by plunging residential property prices.
Here’s the president’s view on the current housing crisis as expressed during an interview with PBS last night: “I have heard about using taxpayers’ monies to buy empty houses, which I think would be a huge mistake. That plan doesn’t help homeowners. That plan helps lenders. And we want to help homeowners.”
The president couldn’t be more mistaken. In fact, the judicious use of federal funds to help targeted neighborhoods devastated by the housing crisis would help lenders very little but responsible homeowners and neighboring renters and businesses very much. “Empty houses” depress neighboring house values and attract vandalism, arson, and other criminal activity, further threatening to destabilize neighborhoods.
The foreclosure numbers even a year ago should have caught the president’s eye. Now, across the nation, the foreclosure numbers are even more telling according to the most recent data that RealtyTrac has mapped.
Even lenders recognize these problems, but they are unable to offload their foreclosed properties because housing prices are still plummeting in these neighborhoods President Bush evidently hasn’t visited recently. Fortunately, plans to stabilize communities hardest hit by the housing crisis are now under consideration in Congress, including the Center’s own Great American Dream Neighborhood Stabilization, or GARDNS plan, proposed by CAP Senior Fellow David Abromowitz.
By buying up bank-owned and abandoned properties and selling them to qualified buyers as affordable housing, the U.S. government can reduce downward pressure on house prices while also creating opportunities for sustainable homeownership. To accomplish the overriding goal of stemming swiftly the part of the foreclosure crisis driven by rapid price deflation and locally frozen housing markets, we have proposed our GARDNS plan.
Basic program attributes of the GARDNS plan would include funding primarily for the acquisition of foreclosed and abandoned homes by a local community land trust, community development corporation, or other non-profit or governmental agency. These funds would purchase foreclosed or vacant absentee-owned homes in low- and moderate-income neighborhoods with high concentrations of foreclosures or high rates of loan defaults.
The purchase price for individual properties, or ideally, for bulk purchases, from banks holding title would be based on an as-is appraisal of the properties. The price paid would be at a steep discount from the original mortgage balance, preventing scarce resources from becoming a bailout to banks. Once purchased (and sometimes rehabilitated), these homes would be promptly resold to a low- or moderate-income homeowner who would receive appropriate home buying counseling and a fixed-rate mortgage product that is affordable to the family’s particular situation—based on standard guidelines established by the state or local participating jurisdiction.
The initial homeowner would enter into some form of shared equity affordability arrangement, monitored by a local organization with some expertise in affordability arrangements such as a community land trust, consistent with existing federally subsidized homeownership programs. Where no appropriate homebuyer is promptly available, the home could be rented to a low- or moderate-income household at affordable rents, with preference given for rent-to-own arrangements.
Funding would come through an additional appropriation of block grant money under HUD’s HOME or Community Development Block Grants programs, with some relaxation of certain otherwise applicable restrictions such as the local match requirements. To address local implementation needs and the desirability of keeping the targeted neighborhoods secure, a limited portion of the HOME and CDBG funds should also be available to local governments for police, fire, and code enforcement efforts in the same neighborhoods where the GARDNS purchase effort focuses. The funds for GARDNS would be above and beyond existing funding levels, as the need for affordable housing has increased with the current housing and credit crunches.
Some fiscal controls on the use of GARDNS funding are necessary to avoid waste and overspending, but overregulation should be minimized as much as possible. It is questionable, for example, whether there is much value in requiring appraisals of a recently foreclosed home in advance of acquisition. Appraisals are inherently uncertain in a local submarket when foreclosures may be the primary comparable sales. Using a somewhat broader area median house price figure as a cap—given that each local stabilization buyer has only a limited pool of resources to work with—the local parties have every incentive to pay only what is necessary to purchase the home in question.
President Bush doesn’t think these steps are necessary. Like his father before him, he needs to get out and about more often among average Americans.
Ed Paisley is Vice President for Editorial at the Center for American Progress. To learn more about the GARDNS plan from David Abromowitz and other housing proposals by the Center, please see the Housing page on our website.