In case you have not heard, the Obama Administration is looking for some help with solving the housing crisis. They have put out a formal request through the Federal Housing Finance Agency (FHFA), in consultation with the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development, by issuing a Request for Information (RFI).
I think what they really need is a leader with the title “Obama Housing Czar” who will come in and put solutions in place to get the Federal Government out of the home ownership business. The road to hell might be paved with good intentions, but we are on that road nevertheless, and it is high time to take the next exit.
I have reviewed the RFI, which is written in typical government gobbledygook, and have formulated a viable solution that with your help (at the end of this post) will make it to the appropriate inbox. As you read through the skeleton of my plan, don’t be too quick to assume that I am kidding, as the solution to our problem will require some serious “out of the box” thinking, which means that elements of my plan might sound a little crazy at first glance. But aren’t most Czars a little crazy anyway?
Obama Housing Czar Sought For Ideas
On the first page of the RFI, which is written as an open letter for assistance, the Federal Government explains that it wishes “to solicit ideas for sales, joint ventures, or other strategies to augment and enhance Real Estate-Owned (REO) asset disposition programs of Fannie Mae and Freddie Mac (the Enterprises) and the Federal Housing Administration (FHA).” The agencies are exploring alternatives that will:
- Facilitate the current and future disposition of REO
- Improve loss recoveries compared to individual retail REO sales
- Help stabilize neighborhoods and local home values
- Where feasible and appropriate, improve the supply of rental housing
I think the first three points make perfect sense for the proposal, but the fourth one came in from Siberia (Russian for “left field”) and is not necessary. Most of the problems with the housing market are based upon outside agencies tinkering with a market that should rely upon supply and demand, so the very last thing we want to do is empower the Obama Housing Czar with a long term influence over the supply side of the housing market.
Obama Housing Czar Knows Real Estate Is Local
The first thing one must understand that the solution to the housing crisis will not allow for a “one size fits all” solution. Real estate is local in nature, and there is no real US housing market. Housing markets are contained to regional spaces that center around communities, natural resources, and places of work, therefore the Obama Housing Czar will have to assemble a network of experts across the US that will aid him in developing an accurate picture of the current real estate supply and demand dynamic for every location.
This task is fairly simple for people with analytical skills and real estate experience. One must have both, because there are too many “tricks of the trade” to simply hand this off to a bunch of bean counters who have never experienced the corruption of mangled real estate data that is maintained within the MLS systems. Additionally, most real estate professionals are hungry for work, so they can be retained at very reasonable rates.
If I Were Named The Obama Housing Czar, I Would …
OK, you’ve made it through the preamble, so here is where I expose the structure of what I would do if named the Obama Housing Czar, and why I am confident the solution is the best available for a beleaguered economy. As the only caveat in this article, I will point out that this article has been written (rough draft = final copy) by myself alone, and as the Obama Housing Czar, I promise to have smart people look it over for any weaknesses that it might contain .
By The Numbers, The Obama Housing Czar Solution
The three guide points that I used for my Obama Housing Czar Solution come directly from the RFI mentioned above. The Federal Government is seeking a plan that will facilitate the current and future disposition of REO, improve loss recoveries compared to individual retail REO sales, and help stabilize neighborhoods and local home values. As you will see from the six-step plan that I provide below, this super cost effective solution will allow the government to exit the “home ownership” business, save the taxpayers money, and help to bring about immediate market equilibrium in over 90% of the US housing markets.
My plan as the Obama Housing Czar is fairly simple, and I have to acknowledge that it was first mentioned by Warren Buffett last year as “option #1″ for curing the housing market. It involves identifying homes that are not needed, and simply burning them down. My plan will demonstrate that this “crazy sounding notion” is in fact the best choice for the US government in fixing a problem, that if left unchecked, will most likely take another decade or more to resolve.
In order to fix the housing market, the Obama Housing Czar will implement a 6-step plan to determine the scope of the problem and to actuate the solution.
- Estimate of the Situation – The first step in the solution that I would bring forward as the Obama Housing Czar would require an accurate estimate of the situation. I would confer with experts about the real count of distressed properties and then also meet with experts about supply and demand in local housing markets. This would allow The Czar to have real figures regarding the excess supply that are needed for the Obama Housing Czar solution.
- Determine Hard Numbers – The second step would be to compare local vacancy rates (both “for sale” and “for rent” properties) with historical levels to determine the fair market level for vacancy. This would provide for local market targets that, in conjunction with the information found in the first step, establish real numbers for the plan, for every US housing market.
- Meet With End Game Players – My Obama Housing Czar Solution would result in (rough estimate) 1.5 million destroyed properties, thereby leaving 1.5 million developed lots that would have a future market value. I am confident that these could be sold right away, with a “guarantee of future value” by the US government, that would attract a lot of demand from long-term fund managers. I will elaborate how this will work in the “important elements” section of this article below.
- Property Selection – The property selection process of the Obama Housing Czar Solution would require local intelligence, and the same group of people assembled to help create the supply and demand figures used in the first two steps would be very capable in helping to determine which properties should be targeted for destruction. Many of the properties will not come from the distressed property held by the government, rather local market inferior properties could be selected and thereby “replaced” with current REO properties. The results of this plan will leave better homes in place while removing the less serviceable ones from the local markets.
- Fire Up The Torches – Once the properties were selected, jobs would be created in the eradication of the homes identified for demolition. This would “maximize economic value” by puting many of the construction workers back into the workforce, thus helping the economy immediately with new jobs, and creating revenue from income taxes for local and the Federal Government as well.
- Resumption Of Consumer Confidence – After 1.5 million homes have been removed from the housing market, supply levels will be normalized and appreciation would return to the market once consumer confidence returns. This market equilibrium (5 to 6 months of supply of homes in all local markets) would create the scarcity that is needed for a healthy and vibrant real estate market.
Important Elements Of The Obama Housing Czar Solution
The six-step plan for solving the housing crisis listed above generalizes some critical information that requires specific explanation. First and foremost, it is important to understand that the homes being destroyed will be the same number as the target figures determined in the first two steps above, but will not likely be the homes held by banks and the government right now. The Obama Housing Czar Solution will serve to upgrade our standard of living by removing the least desirable homes (across every price range) in each local housing market.
Secondly, this plan proposes a “guaranteed sale” of the remaining developed lots to investors. I foresee a situation where investors would buy the lots at a market value established by local experts, and these investors would be required to hold the lots until they could be sold at a market value that would yield a return on investment that exceeds a pre-determined rate. If this rate cannot be reached within 15 years, then the Federal Government would be required to buy back the lots. While this might sound ominous, history teaches us that household formations will help us consume these lots in most markets far sooner than the 15 year window. By requiring the investors to hold until certain values are met, home values will not decline due to a rush of cheap, developed lots hitting the market.
There are many investors today that would crave a guaranteed return (or better) deal with a period of 15 years (not an arbitrary figure, rather one that has been estimated to exceed most current recovery expectations). Insurance companies and other funds that regularly buy highly rated bonds would certainly be interested in something guaranteed for 15 years by the US Government.
The vacancy rate calculations that compare current levels with historic norms are a critical part of this plan, as it will help determine the exact number of homes that need to be demolished. Fortunately, the current US Census and some other key data reports have already gathered much of the required information, and my estimate of 1.5 million homes could easily be off by 25% or more. That is why the second step of the Obama Housing Czar Solution is critical, and why local experts must be assembled to ensure accurate calculations.
Help Appoint Me As The Obama Housing Czar
You can help promote this plan to the proper authorities by simply providing your name and email address in the form below. If you do, an email will be generated to the Federal Government asking them to read this article and consult with me about the solution to the housing crisis. Who knows, they may even appoint me as the new Obama Housing Czar!