Too Little, Too Late?
The St. Louis Post-Dispatch reports that regulators have granted banks increased flexibility to rent foreclosed homes that they cannot sell. This is great news. Private banks now have more options that can help put vacant homes to productive use, and people still (understandably) wary of purchasing a home can choose to rent one instead. Hopefully this will result in fewer vacant properties and more people in homes.
However, this ease of regulation comes just a little late. The housing market crisis began years ago. Part of the federal government’s response was to throw hundreds of millions of dollars in taxpayer money at the problem. In February 2010, the U.S. Department of Housing and Urban Development (HUD) awarded more than $223 million to help establish land banks in Michigan. More than $40 million went to a land bank in Ohio. The Saint Louis land bank, the Land Reutilization Authority (LRA), has used federal money to acquire property.
It would have been nice if the federal government had eased this regulation earlier, and before so much money was dumped into a program that has not been proven successful. After all, the Saint Louis land bank, which is the oldest standing land bank in the U.S., has not succeeded in getting vacant property back into private, productive use. Since its creation, the land bank’s holdings have quintupled, and Show-Me Institute research found that the land bank had a habit of rejecting nearly half of all formal offers to purchase its property.
There is a real risk that land banks set up in Michigan, Ohio, Indiana, New York, and other states will end up where the Saint Louis land bank has: Holding many properties indefinitely, and plagued by processes that favor political insiders. Much of the blame for this expensive and unproven expansion of land banking rests squarely with the federal programs and funding that encouraged it.
Reducing regulations associated with renting vacant, foreclosed homes is a good first step to dealing with the glut of foreclosed property. A next good step would be for the federal government to cease funding land banks.