August 15, 2011

Reality Check: The American Renter Society (Guest Post)

By Tim Iacono

More signs that America’s home ownership society is on an inexorable path back toward a higher percentage of renters come via two news reports, the first being this Washington Post story about how the GSE wards of the state are considering renting some or all of the hundreds of thousands of homes they’ve foreclosed upon in recent years.
"The Obama administration Wednesday went searching for creative answers to a perplexing question: How can the government rid itself of the glut of foreclosed properties it now owns in a way that nudges the housing market toward recovery?
As the housing crisis has persisted, government-backed mortgage giants Fannie Mae and Freddie Mac, along with the Federal Housing Administration, have taken possession of hundreds of thousands of foreclosures throughout the country. But selling those homes at decent prices in an abysmal market has proven difficult.
That quandary led the Treasury Department, the Federal Housing Finance Agency (which oversees Fannie and Freddie) and the Department of Housing and Urban Development on Wednesday to put out a “request for information” seeking imaginative ways to clear the backlog, particularly by turning foreclosed properties into rentals. Officials said they are hoping to identify private-sector partners that could purchase pools of foreclosed properties and turn them into rental units. If successful, the effort could help the government clear the backlog on its books, meet increasing rental demands and help relieve pressure on local housing prices."
Actually, a new supply of rental units on the market would help the economy in a number of ways. First, it would decrease the downward pressure on home prices by reducing supply. It would also make rent cheaper by increasing supply, helping to tame inflation fears (via the nefarious owners’ equivalent rent in the consumer price index), paving the way for more Fed money printing. Of course, this is only good for the U.S. economy in a very distorted, very short-term sense of the word, solving none of the nation’s long-term problems such as an unhealthy fixation on asset prices in recent decades.

Thousands of miles to the West, they’re already well on their way in de-emphasizing owning property and renting it out instead. It seems that the White Elephant known as Las Vegas’ City Center has been renting out pricey condo units to bellhops and busboys because there just isn’t enough demand from buyers. This Wall Street Journal report has all the details:

"Turns out CityCenter on the Las Vegas Strip is becoming something of a real residential community — just not the way the developers originally envisioned.
That’s because the multi-towered complex has rented out in one- and two-year leases 346 units it once planned to sell as multi-million luxury condos, CityCenter president Bobby Baldwin said on a conference call Monday afternoon. The $9 billion complex, with luxury condos, hotel rooms, gambling and retail, is owned by MGM Resorts International and Dubai World.
Anthony Phillips, a Las Vegas real-estate agent, has helped people sign leases in Veer towers, designed by renowned architect Helmut Jahn, for as little as $1,390 a month. The units in the sloping yellow towers include a rooftop pool, exercise room, a resident’s lounge and full concierge. Now most of those go for $1,600 to $1,700 a month while two-bedrooms are $2,300 a month, Mr. Phillips said.

Mr. Phillips said he has rented units primarily to people who work at CityCenter and other casinos on the Strip, including valet attendants and restaurant managers. At one point studios could be rented for as little as $1,000 a month, Mr. Phillips said, which isn’t much more than the prices some mid-level apartment complexes miles from the Strip generally charge.
“It’s a great time to be a tenant in this town,” Mr. Phillips said."
Recall that CityCenter was designed and built at the height of the housing bubble and many thought the 2,400 condo project would never be completed. With property prices in the area now down more than 50 percent from their 2006 highs, you have to wonder how they ever finished building it, but, with less than 20 percent of the condos sold, their future remains uncertain

About The Author - Tim Iacono, a retired software engineer living in Bozeman, Montana, is the founder of The Mess That Greenspan Made. (EconMatters author archive here.)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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