Sell ​​Bonds To Investors To Stop Investors In Housing

On April Fool’s day I posted about a legislative proposal in California that would punish people for investing in housing. That measure hasn’t gone anywhere lately, but the resentment behind it isn’t likely to abate in California or other places. The Port of Greater Cincinnati Development Authority (the Port) has decided to start buying up houses in the city to stymie investors in housing. The rationale appears to be the same as the effort in California: to punish people who buy and rehabilitate older homes to make them available as rental housing for people with modest incomes. If nothing else, the story shows just how far bad ideas can travel when it comes to housing. Hopefully, other more sensible efforts in Cincinnati will prevail in the long run.

The story describing the Port’s efforts to buy homes is remarkable for the language it uses (emphasis mine throughout).

It starts with the headline: “Cincinnati agency buys 200 rental homes, elbowing out investors. ”

“The government program is a skirmish in a campaign to keep homes out of reach of professional investors. ”

“[Investors] helped jack up home prices while whittling down the number of homes for sale. ”

“Cincinnati, because of its lower home prices compared to many cities, was prone to a stampede by investors. ”

“With private investors on the prowllocal governments have marched into the fray. ”

Sounds like the first 20 minutes of The Gladiator. But the story has very few details and they are hard to find on the Port’s website. According to the story the Port will “pay $ 14.5 million for 195 houses throughout Cincinnati and surrounding Hamilton County, aiming to thwart investors and keep renters in their homes.” Apparently, the Port plans to buy properties with people living in them, then sell them to the renters. “We plan to sell them at as low a price as we can,” said Laura Brunner, the Port Authority’s CEO.

But aren’t people living in those homes? Are they the “renters” she’s talking about? How will they pay for the house the Port is going to sell them? If they’re renters, one would guess they can’t afford to buy a home. How’s that going to work?

And $ 14.5 million for 195 houses is an average of about $ 75,000 per home. Is it like the one that the Port is apparently selling on its website? That house, 571 Hale Avenue, is valued at $ 153,400 on Zillow, about twice that average. The Port’s Landbank Frequently Asked Questions page it answers this question, “How do I apply to buy a property from the landbank.”

“We are not like a typical property seller. We are motivated to find the best end-user who can fix a broken property in a way that is supported by our community partners. ”

It goes on to say,

“Every application must clearly identify what you will do with the property once you purchase it, provide estimated costs to complete your development, and include information on what funds you have or can borrow for the project (cash on hand, a loan, a grant , historic tax credits, etc.). For properties with structures on them, once your application is preliminarily approved, we can set up a time for you to go through it so you can get better cost estimates on rehab and decide whether it is the right property for you. ”

Hmmm. It sounds like what the Port does is buy rundown properties and sell them to people who spend money to improve the down market or derelict properties for the purpose of putting them back to use. It’s hard to understand how this transaction wouldn’t be an investment for the person borrowing the money.

The Port’s gambit is bizarre. Or maybe the writer of the story was bored with the details of the transaction and wanted to cast it as a fight to the death between the noble Port and greedy investors bent on ripping off the poor people of Cincinnati.

But the bottom line is this: you can’t finance anything without capturing value to pay back the investors that put the money up. I think Laura Brunner is pretty smart and she’s pulling a fast one on the people of Cincinnati and the press by casting what she’s doing with the Port’s power and money as “thwarting” investors. If she’s going to issue bonds that will be purchased by investors to pay for the houses, then sell them to other investors who will fix them up to rent to people then, well, the whole thing is about investment in housing, and there is nothing wrong with investing in housing!

The people at the Port should stop vilifying investors in housing; their entire organization and operation would not exist without them. Investment is what will make the Cincinnati economy thrive and grow and if the City expands housing supply by reducing regulation and increasing allowances for density, there’s no reason to be closing the door to any person or business who wants to purchase, improve, and offer rental housing.

The Port’s public relations strategy is divisive and unnecessary. If anything, the Port should be working with real estate investors collaboratively to reactivate derelict properties, build denser housing on vacant land, and expand housing supply to keep up with demand.


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