The foreclosure epidemic in our state has created two major problems in addition to the most obvious one of removing families from their homes. The first problem is the flooding of an already deeply underwater home purchasing market with even more inventory that does not have nearly enough cash-endowed or creditworthy homebuyers to sustain it and the second problem is a red-hot rental market, caused by so many former homeowners looking for a place to live.
The solution to all three of these problems can be found in something called a Real Estate Investment Trust (or REIT) for short, which is an investment vehicle that real estate developers have historically used to fund their development efforts, where investors can buy shares in a REIT, which owns rental properties, and earn investment income both from the appreciation of the value of the underlying property as well as dividends on the rents paid to the REITs.
REITs have historically been more popular amongst small investors, who do not have the capital to invest in real estate on any kind of significant scale, than large investors, who have more than enough capital and are not interested in paying taxes on both capital gains and dividend income. It is this reason why, despite having so much cash floating around our financial system, very little, if any, of it has gone to buying up large numbers of foreclosed homes and renting them until they can be resold at a profit. The taxes on both capital gains and dividends make the return on investment (ROI) inadequate for it to happen on any kind of meaningful scale to positively impact either the flooded purchasing market or the scorching rental market. And even if investments like these were being made at any significant level, it is more likely than not that most struggling homeowners would still be forced out of their homes.
This is why our federal and state governments need to write legislation for the creation of a very specific kind of REIT that would be established solely to purchase homes from struggling homeowners through a short sale and rent those homes back to the former homeowners until they are in a position to repurchase them from the REIT or choose to move elsewhere. Because this REIT would enable families to remain in their homes as renters rather than owners and in order to attract investors, I believe that it should be exempt from both capital gains and dividend taxation.
Helping people stay in their homes in this way would take a significant amount of pressure off of both the purchasing and rental markets, allowing both to stabilize and living here to become more affordable. I also believe that this kind of REIT is a far more suitable investment for both small investors and even large institutions, like our state’s public employee pension fund, both of which have been hurt badly by the volatile nature of both bond and stock markets. A REIT like this would create a way for many people to invest in the health and well-being of all of our communities.
And Republicans should like this proposal, because it doesn’t use a single penny of taxpayer money. If anything, it creates an opportunity for tax-exempt investment that actually does some good for the community-at-large. It is really a win-win scenario.