An investigation by the Los Angeles Times reveals disappointing results from the federal “Dollar Homes” Program; a plan requiring local governments to purchase foreclosed homes for one dollar, repair them, and sell them at discounted prices to low-income families. The majority of homes purchased in the program were sold to contractors and investors, not low income families, and later resold for dramatically higher prices. Later homeowners under the program were prone to foreclosure. HUD itself continues to do little to monitor the program’s status. These problems are especially prevalent in the city of San Bernardino, which purchased more homes under the Dollar Homes Program than any other local government in California.

first tuesday take: The Dollar Homes program did stimulate the local economy, but the legislature failed to consider that investors have the inside track when political persuasion is used to move the markets. Investors probably would have acquired these rehabilitated properties even without the generosity of tax payer involvement. The markets will return to normal, and the volatility of sales volume will stabilize into a really boring market, only when government involvement in real estate ends.

Government has valid uses, even in the field of real estate, such as facilitating and regulating growth in construction, finance, brokerage, investing, etc. However, whenever government gets into the subsidy game to influence results it brings out the worst in real estate everywhere. People want real estate, and the current binge of subsidies is artificially redirecting the purpose and need of buyers. Subsidies range from cheap Fed money to the largess of tax credits, tax deductions and grants. The current subsidy boom will soon be over, though, and the market will return to normal operations, although we can expect a tad more regulation once things calm down.

Re: HUD’s Dollar Homes falls short of mission”, from the Los Angeles Times