The large-scale movement of investors back into the real estate market has become a major issue in a lot of cities trying to implement strategies under the Neighborhood Stabilization Program (NSP). It seems pretty clear that in many market areas prices have come down to where an investor can make a decent profit on the cash flow from buying units and renting them out, and gambling on some future appreciation down the road. Currently, 2 out of 5 sales in the Vegas and Phoenix metro areas are investor sales, and 1 out of 3 in Miami-Dade. Cities and community development corporations (CDCs) often simply can’t compete with investors, who are not bound by the NSP discount requirements, who don’t have to jump through elaborate paperwork hoops to make decisions, and can offer lenders quick, all-cash deals for their REO properties.
It’s not clear how to think about this – is it a good thing, because investors are absorbing properties that would otherwise sit empty, or is it a bad thing, because they are taking properties away from homebuyers or CDCs, who might generate better long-term outcomes for the properties and the neighborhoods? Probably some of both, but in any event, investors are not going away. It’s time public agencies and CDCs recognize that they are a long-term and important part of the local housing scene, and figure out how to work with them. That, in turn, may involve new public sector strategies. Yes, many communities could do more to discourage bad actors, but hammers are not usually very effective by themselves; we should also be thinking about incentives, to motivate investors to become part of the solution to the crisis our neighborhoods are facing. The question is, how?
Alan Mallach is a non-resident senior fellow at The Brookings Institution. His most recent book is A Decent Home: Planning, Building and Preserving Affordable Housing (Planners Press, 2009).