There is nothing good to say about the mortgage crisis that sent the American economy into a tailspin, but there is at least one big opportunity in the aftermath: the 230,000 foreclosed homes–many of which are in poor condition–owned by Fannie Mae and Freddie Mac. Once they go on sale, these properties will create a glut in the market, depressing home prices for the foreseeable future. But instead of just offloading these properties, the government could instead sell the homes to landlords, who rehab them with energy retrofits and put them up for rent.
The concept, dubbed Rehab-to-Rent, was recently proposed by the Center for American Progress in response to the Federal Housing Finance Agency’s (FHFA) call for ideas on how to convert these foreclosures into rental units. The CAP’s report contains a number of suggestions for how to implement Rehab-to-Rent. Among them:
- Make sure home bidders have both a decent track record and a plan for energy-efficient retrofits. Take into account their history of economic development and sense of community.
- Specifically encourage local community organizations to buy properties and rent them out, ensuring that the affordable rental housing market is preserved. Low-cost seller financing will be necessary to make this happen, because community nonprofits often lack the cash to pay upfront.
- Offer incentives for property owners to retrofit and renovate through financing from the federal government.
This is a program that at first glance seems like something Freddie Mac and Fannie Mae would hate. Why wouldn’t they just want to dump all the houses into the market? The authors admit that there is a seeming conflict of interest, “namely between maximizing short-term return to Fannie Mae and Freddie Mac–likely by selling the foreclosed homes they own to the highest bidder–and stabilizing local housing markets to benefit taxpayers generally by not flooding the housing market with the mass sale of foreclosed single-family homes.” But, they say, the “goals can actually work in tandem if FHFA focuses on maximizing the medium- and long-term returns on these assets, which will in turn stabilize housing markets and neighborhoods hit hardest by the foreclosure crisis.”
At a certain point, it doesn’t really matter what Fannie Mae and Freddie Mac want–they’re under the conservatorship of the FHFA, which wants to create stability in the housing market. A Rehab-to-Rent program can do that–and it can help to create more stable local economies in general since energy retrofit projects create jobs.
Where might we see Rehab-to-Rent programs pop up? Based on a handful of factors (Fannie and Freddie-owned properties, rental vacancies, etc), CAP suggests some pilot cities, including Las Vegas, Austin, San Francisco, Atlanta, Detroit, Miami, and Seattle. For the full list, and more on CAP’s methodology, check out the full report here.