Landlords and property managers are responding to news that the Obama Administration is considering taking over a stockpile of foreclosures, and converting these properties to rental housing.

Many, like veteran property manager Wallace Gibson, CPM, say it was only a matter of time before the government would step in and try to fix the battered housing market. 

But is becoming the nation’s landlord such a good idea?

One initial reaction to the plan is fear that this housing will end up Section 8 controlled.  Not that anyone is against creating affordable housing for the scores of families who need it now, but because of one undeniable reality about Section 8–once a property is occupied with tenants, it will be virtually impossible to get it back on the market, or for a buyer to convert it away from affordable housing.  And that has consequences for investors.  “These homes will never be resold once tenants are in place,” says Gibson.  “This will allow the government to create yet another entitlement program.”

Others are concerned how the federal government will be able to manage such a colossal undertaking.  “I was around during the Resolution Trust Corporation, and received many solicitations for me–a woman-owned business, to bid on the management of these government-owned properties, Gibson explains. ” The paperwork was horrendous just to be considered for management. This allowed for many scams in management, rent-skimming and repair overcharges. Taxpayers will ultimately pay for this poor service just like they have with the deteriorating government-owned subsidized housing stock.”

Gibson also remains skeptical about the financial maneuvers required to affect the takeover.  “These properties are currently carried on the books of banks and mortgage firms,” she explains.  “Somebody will need to pay some value for these assets before they can be utilized in this way. Guess who pays? Guess who gets paid?”
 
There is also the fear the plan will drag down property values in neighborhoods.  Gibson cites instances where, without the pride of ownership factor, entire blocks have been razed. 

A government take-over of these inventories is not the only solution to this dilemma.  The government could look at ways to entice long-term investors into buying the properties, putting some money into repairs and upkeep, and creating more private rental housing inventory for the increasing number of people who need it.  These investors often possess property management experience, or can hire a private manager to oversee individual properties more effectively than the government could collectively.

Recent  foreclosure inventory reduction plans have been designed to encourage homeownership, even to the detriment of interested investors. But with new reforms taking financing off the table for many, and a shift in sentiment that now favors renting over homeownership, those plans do not appear to be working.