Right to Rent legislation may cut down on the number of vacant properties on the market.
Over the past months, it has become increasingly clear that many programs from the government designed to stop foreclosure are not working. Well-intentioned though they may be, programs like HAMP are simply not helping enough people modify their mortgages. Almost one quarter of homeowners with mortgages have negative equity in their homes. Another quarter of homeowners are almost underwater. There is a huge oversupply of housing which, along with lack of demand, is depressing home values across the country. A massive amount of shadow inventory (foreclosed and distressed homes yet to hit the market) could further increase housing inventory and diminish home values.
It seems clear that some sort of novel solution is needed to help solve this problem and cure the ailing housing market (n.b. the not-so-novel solution of reforming the bankruptcy code in order to allow mortgage cramdowns would be effective).
A new legislative proposal, H.R. 5028 (termed the The Right to Rent), sponsored by Rep. Raul Grijalva (D-AZ), could provide an solution to the foreclosure problem. The law would allow borrowers going into foreclosure to rent their home at a fair market price (as decided by independent appraisers) for up to five years. While this may not be an ideal solution to the problem, it would stop many foreclosures, allow people to stay in their homes, and most importantly would cut down on the amount of housing supply added to the market.
The Center for Economic and Policy Research released a study by Dean Baker and Hye Jin Rho on the proposed Right to Rent legislation. This was their takeaway:
“[Right to Rent] would give homeowners an important degree of security, since they could not simply be thrown out on the streets. If they like their house, their neighborhood, and the schools for their kids, they need not have their lives severely disrupted by foreclosure. This policy should also benefit neighborhoods in the most hard-hit areas, since they would not have large number of vacant homes following foreclosures.
Right to Rent rules may also increase homeownership, since it will make foreclosure a less attractive option for lenders. If they knew that they could not foreclose and get a house free and clear, they may put more effort into arranging modifications that homeowners can afford.”
The study goes on to find that the majority of homeowners in danger of foreclosure could afford to rent their current house at a fair market price, which makes the proposed legislation viable. Currently the Bill is in committee, and is nowhere near becoming law. As things change I will do my best to keep you up-to-date. Do you think the Right to Rent Act is a good idea? Would it help to stabilize the housing market?
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Bobby Dale
September 23, 2010 @ 5:50 pm
Is this a limited time solution? Would this make the government the de facto largest landlord in the country? How would evictions be handled? Could your congressman stop an eviction? Would any private lenders ever again reenter the mortgage market once this is enacted? Who sets the market rent? HUD/Section 8 are notoriously high. Would the county collect property tax on Government (Fannie/Freddie/VA/FHA) owned properties? How would property tax appraisals be done; by percentage of rent or previous sale price? Would maintenance be done by owner or renter? Would HOA regulations in regards to rentals be tossed?
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Harry Connor Jr
September 26, 2010 @ 5:52 am
I think the “Right to Rent Act” is a good idea, as any idea that keeps people in their homes as opposed to being homeless is definitely a good idea.
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