About things like this, rather than six good numbers? There's nothing more depressing than being prescient when what happens is something you dread. But here it is. Last month on the Peter Viles LA Land blog, there was discussion of a proposal to enable communities to buy up foreclosed properties. While many of the bloggers were adamantly opposed to this, seeing it as another government attempt to prop up housing prices, I thought it was a great idea, and said so. If you're interested in reading the comments directly, go here. But I noted that there was a potential problem, in that local governments might decide to buy up all of the junk, rather than look for properties that made long-term sense as affordable housing (whether rental, co-op, communes or whatever).
So this morning I made the mistake of reading the paper. Foolish me. What do I find? Our local Sacramento Housing and Redevelopment Agency (SHRA) has announced that they will use the $12-30 million that they will receive to buy up the drek de la drek. Noooooooo. Bank-owned properties that constitute a public nuisance should be dealt with through code enforcement, just like any other blighted property. In fact, the State Legislature, as part of SB 1137, allows communities to fine banks $1,000 a day if the banks don't keep up appearances.
Worse than that, the whole blocks of blight that SHRA is talking about buying are not the newer housing in moderately-decent working class neighborhoods. What they're going to buy is the stuff that no bank should ever have touched, that in Sacramento's bubble run-up, was only salabe because it was the cheapest stuff around, and which should probably just be declared dead and torn down (at the banks' expense, of course).
What this proves is not that communities shouldn't be purchasing affordable housing, but that it shouldn't be left to local power structures with more interest in subsidizing the real estate industry than providing affordable housing.
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While I suspect it is for different ideological reasons, this kind of behavior on the behalf of government is why it is so critical, in my mind, that banks be forced to take the appropriate mark to market write downs on the mortgages made. While banks will scream and kick about how mark to market destabilizes the system by exacerbating temporary "dislocations," the truth is that mark to market accounting is the best tool we have.
More importantly, forced mark to market would end up with a much more rapid repossession and foreclosure process. While we can debate the relative problems with doing so, the end result will be much more affordable housing for EVERYONE and, on a macro level, a quicker path to an economic recovery.
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