Good ideas will save us
The collapse of the housing industry in 2008 is well documented. The crisis went far deeper than simply putting homebuilders out of work, thereby seeding the current housing shortage in Santa Fe. The larger and more painful reality was nearly 10 million foreclosed homes. Suddenly, lenders, who arguably created the crisis, became owners of singlefamily residences they had no desire to rent and no buyers to occupy.
Because capitalism, like nature, abhors a vacuum, an entirely new industry was born — the megalandlord. Pioneered in Arizona, an entity called BB Living assembled capital and began buying up every single-family foreclosure it could find.
After a little sprucing up, these dwellings became rentals to solid middleclass tenants — often people who had lost a different home in foreclosure but were still earning steady income. With wrecked credit keeping them out of the homeownership game for seven years, they were the perfect long-term tenants.
Similar successful speculation occurred in most major American housing markets.
But a business model predicated on a once-in-a-lifetime real estate disaster is not a sustainable one. Now, foreclosure rates are back to prerecession levels, which means foreclosures are rare, and supply isn’t meeting hyper-demand for rentals. What to do?
BB Living decided to build singlefamily home subdivisions exclusively for renters. The idea worked so well in Phoenix it attracted the attention of Toll Brothers, one of the country’s large publicly traded mega-builders. They both recently announced a $400 million joint venture to expand the concept beyond Phoenix to Denver; Las Vegas, Nev.; Jacksonville, Fla.; Boise, Idaho; Dallas; and Houston.
Santa Fe isn’t on the radar for such speculation, but the idea has merit and could potentially engender a local spin. There is no question local rental market demand is stronger than the purchase market right now, which is saying something because the purchase market is stronger than it’s ever been in Santa Fe.
But who has capital to build 100 modest houses at $200,000 a pop? An investment that takes 10 years or more to pay off from monthly rentals? Not many, but there are a few, and a couple are Santa Fe’s great housing development nonprofits.
The Housing Trust, for instance, has successfully added landlord to its list of accomplishments,
with two successful multifamily rental projects and a third about to finish in Las Soleras. Adding single-family, build-forrental isn’t such a stretch, especially considering its ability to control the fate of nearly 2,000 lots in Tierra Contenta.
Homewise could be another player. Although historically dominating the affordable homeownership space, rather than developing rental properties or helping renters, the sophistication and scale of the organization could easily add rent-collecting to its portfolio. And while Homewise might morally balk at trapping clients into wealth-sucking rent rather than wealth-building ownership, it doesn’t have to be one or the other.
Many begin the path of homeownership with a “real estate contract” in which the financer of the property is the individual who owns the property. It’s also known as “rent to own.” The original
owner is said to be “holding the paper.” The agreements are typically short term, less than 10 years, and a special warranty deed is held by the rent-to-owner.
It provides the original owner an income stream and postpones capital gains taxes. It also gives the prospective owner a chance to build credit, assemble a down payment and potentially benefit from accrued equity from his or her own improvements or improving market conditions. On the other hand, if the rentto-owner misses too many payments, the original owner can take back the property, including all equity and improvements.
It’s risk and opportunity worth considering. Mega-builders aren’t going to save us. Good ideas might.