
In the midst of all the busy news on the grand economic scale, I get an email from my hometown. NYC Council recently set up a Task Force on Financially Distressed Rental Housing. At first glance this alerted me as more city level bureaucracy touching on a complex subject that always reminds me of my distrust in government - that is the housing market. The purpose of this new task force is to hold banks and landlords accountable for proper maintenance of their properties in the event of foreclosure or financial distress.
Many real estate companies such as Milbank aggressively purchased properties during the housing boom, attracted to the easy lending spree, and now face the reality of affordability. Milbank is not necessarily unique, but the fact that their portfolio is occupied by high end properties and then a random inclusion of Bronx Collections I and II seems rather odd. The company's strategy was to target low income housing and aggressively seeking out past-due rents, proceed through the eviction process, and then revitalize the property and lure in new tenants and charge higher rent. Or in some cases, because of rent stabilization laws, tenants who have resided in the premises for a long time period are forced out so that the unit can be converted and charged at market rate. One method is to cut down on maintenance.
As buildings headed into foreclosure, landlords decided to make cuts in the maintenance budget to try to squeeze as much cash possible to pay back mortgage debt. Of course, this is not fair to the tenants, and the task force will help to hold landlords responsible to continue legally required maintenance to ensure stable living conditions despite any financial shortfalls. This should be a given, but it's sadly inevitable following failed government incentives.
The task force fails to get to root of the problem. There are still incentives to lend without proper appraisal, this good intention quantity over quality approach needs to stop. Unfortunately, the system doesn't work where tenants are given the tools to evaluate their landlord's debt holdings and ability to pay before they rent. Oh, if the tables were turned. Instead, we figure that stuff is already figured out; but rationality breaks down when government intervenes for a snapshot approach to sway results in political favor.
None of the members on the task force understand the cause of this crisis; because if they did, they would have put a stop to this. Instead we result to stalling - encouraging banks to reach a compromise when it's a clear failure. The council members are allowing the cycle to continue. It's OK to re-enforce the law about proper maintenance, but I'm afraid of these backroom deals between banks, politicians, and landlords. It's what got us into this mess, and it's certainly something to prolong it.
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