Recent attempts in Congress to relieve the real estate crisis may not have produced much in the way of solutions, but they have certainly exposed the conflicting interests inherent in the real estate industry.
One such conflict is between individual homeowners (and the realtors who are allied with them) and the owners of multi-family housing.
In a joint statement issued on April 10, 2008, before the House Financial Services Committee, the National Multi-Housing Council (NMHC) and the National Apartment Association (NAA) took the opportunity to blame what they called the “misguided” national policy of “home ownership at any cost” for the current housing crisis.
According to the joint statement,“People were enticed into houses they could not afford and the rarely spoken truth that there is such a thing as too much homeownership was forgotten”
In sharp contrast to other sectors of the real estate market, the apartment industry has not suffered as a result of the current housing crisis.
As a recent NMHC press release observed, “The challenging economic times and financial market disruptions are having little impact on the apartment industry’s biggest firms.”
We think that the apartment industry is understating its gains from the real estate crisis.
The real estate crisis is forcing the lower end of the single-family housing market back into multi-family rental apartments. People have to live somewhere; if they can’t afford to live in a house that they own, they will be forced to live in a house that someone else owns, such as multi-family apartment units. As homeowners suffer, apartment owners benefit.
The multi-housing and apartment sector therefore opposes pending legislation that would create a new tax credit for people who buy a new house or a house in default or foreclosure.
According to a statement issued by Jim Arbury, Senior Vice President of Government Affairs for the NMHC and NAA Joint Legislative Program, “a home buyer tax credit does nothing to help people stay in their houses. The real problem in the housing market is not the oversupply problem, which the home buyer tax credit targets, but the liquidity problem. Investors have lost confidence in the mortgage market securitization process and until that confidence is restored, the housing market will continue to suffer. ”
“The unintended consequences of a home buyer tax credit should cause any lawmaker to pause and reconsider, Arbury said. “In short, such a credit could actually increase foreclosures and accelerate house price declines…It would increase foreclosures because it creates an incentive for lenders to foreclose so that they can entice a buyer to use the government subsidy to take the house off their balance sheet… It would also accelerate the decline in house prices, specifically the house prices of fiscally responsible owners. If these responsible owners want or need to sell their houses, they are now competing with new and foreclosed properties that come with a $15,000 taxpayer subsidy (the value of the proposed home buyer credit). These responsible owners will be forced to lower their sales prices by $15,000 in order to compete. Should the government be using taxpayer dollars to erode the equity of hardworking, responsible homeowners?”
Instead of a tax credit for home buyers, the apartment industry proposes measures that would “create more affordable housing for the people who are going to be displaced from their single-family houses in this market downturn” – in other words, incentives to build and invest in more apartments.