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  February 15, 2014

Speculators Are Buying Up Vacant Properties With Mixed Results For Cities


Bill Black: As private equity and investment firms purchase vacant properties, it's leading to the restoration of homes and a decline in vacancy, but also causing a decline in tax revenue in some cities
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biography

William K. Black, author of The Best Way to Rob a Bank is to Own One, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics.

Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement.

Black developed the concept of "control fraud" frauds in which the CEO or head of state uses the entity as a "weapon." Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae's former senior management.


transcript

Speculators Are Buying Up Vacant Properties With Mixed Results For CitiesJESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I'm Jessica Desvarieux in Baltimore.

Housing prices have bounced back since the mortgage crisis. But the recovery has not been driven by new home buyers, but by major Wall Street groups buying single-family homes in bulk to rent them out and package the payments into bonds. According to The Financial Times, private equity and investment firms have spent an estimated $20 billion on buying 150,000 new homes.

Now joining us to discuss all this is Bill Black. He's an associate professor of economics and law at the University of Missouri-Kansas City. He's also a white-collar criminologist and a former financial regulator. And, of course, he's a regular contributor to The Real News.

Thanks for being with us, Bill.

BILL BLACK, ASSOC. PROF. ECONOMICS AND LAW, UMKC: Thank you.

DESVARIEUX: So, Bill, can you just explain what's happening here in the rental market? Have we actually ever seen this before?

BLACK: We haven't seen this before. What we've seen before, of course, is real disconnects between the rental markets and the markets for homes. And, indeed, that's one of the signs that we had a very major bubble is the disconnection between those markets.

One of the things that happens when you have private equity funds purchase large numbers of homes is about the first thing they're going to do is go to the city or the county and demand a reassessment of those homes at a new, lower market value. And so one of the first effects of all of this tends to be, in the local community, a substantial reduction in tax revenues. And that can put counties and cities that are already suffering enormously from the Great Recession right over the line into financial crisis, especially because it can happen very quickly in a very unexpected fashion.

DESVARIEUX: We should also note, Bill, about where they're actually making these home purchases. The largest private equity firm in the world, Blackstone, their rental investments are really clustered in the areas hardest hit by the housing crisis. In states like Florida and California, investors account for about 33 percent of total home purchases respectively.

Let's relate this--I'm glad you mentioned this before, but can you speak to how Wall Street is going to be affecting Main Street? How will large investors impact the local real estate market, the availability of homes, rental prices, things like that?

BLACK: Well, the markets have been screwed up for a very long time, the real estate markets. They were screwed up, as I said, because of the bubble.

But then some very weird things began happening, where people basically couldn't buy homes. And they couldn't buy homes because these professional investors were getting there first with all-cash deals. And so sellers were saying, you know, why take the risk on whether somebody is going to be able to get financing, whether the appraisal is going to come in high enough? These folks are going to give me an all-cash deal. I'll take it right away.

And so in the markets where, as you say, they've chosen to cluster--which, by the way, are also the markets which tended to have the biggest speculator frenzy during the bubble phase. And this is not an accident, because often when they're buying up the homes that were already constructed, what they're doing is able to buy for a very low price from these professional speculators who were wiped out, rendered bankrupt when the housing bust occurred. So they can buy very low. They can use that low price, as I said, to then demand a reassessment of the property and a reduction of the taxes.

And then they can, you know, do some things that are constructive, after all. They can try sprucing up the place and actually providing rental housing.

So it tends to be a mixed bag for these cities. It wasn't good having 20 and sometimes 25, even 30 percent uninhabited buildings. You know, that's really bad in terms of crime and property values. But no one would have liked this answer--well, other than the private venture firms--would have liked this as the best answer to the problems of housing. It shows the lack of a public response. And the vulture capitalists (and that's what they call themselves, by the way) come in when the government doesn't do its job.

The right way would be to take this away from the speculators and the vulture capitalists and have the government doing this and the community capturing any of the profits from the restoration.

But I agree it's not simply bad and evil businesses. That's not the right story.

DESVARIEUX: Alright. Bill Black, thank you so much for joining us.

BLACK: Thank you.

DESVARIEUX: And you can always follow us @therealnews. And you can send me questions, Tweet me @Jessica_Reports.

Thank you for joining us on The Real News Network.

End

DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.



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