Memo To Congress: "Buy Land, They Ain't Making Any More Of It"

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David Zalubowski / AP

A price reduced placard hangs below the sale sign outside an existing home on the market in the south Denver suburb of Englewood, Colo

Mark Twain and Will Rogers shared a sentiment. As Twain said, "Buy land, they're not making it anymore".

It would have been interesting to ask each man what he thought about the value of the toxic assets on bank balance sheets. Unlike land, toxic assets can multiply. And, unlike land, the value of toxic assets may never rebound, although analysts differ on that subject. (See pictures of Mark Twain.)

Because the American Recovery and Reinvestment Bill of 2009 has not been passed and signed into law, there is still some time to talk about how it could be improved and to criticize what is not yet set in stone. Instead of spending this money for infrastructure projects to create jobs, it should go immediately to inject capital into the failing real estate market. Instead of purchasing toxic assets with TARP funds, the government should now begin to purchase residential and commercial real estate that is for sale to stop the destruction of property values. Last month the value of housing in the top 20 cities fell more than 18%.

Buying land may be complicated because fraud is sometimes difficult to detect. Land in the ocean could be sold as dry land, but confirming the status of real estate is not outside the scope of the federal government's ability to invest its own money wisely. There might even be thousands of new jobs created for "land inspectors" who have, as their sole duty, ascertaining whether a piece of property exists or not.

The most significant trouble with the real estate markets, both residential and commercial, is that the buyers have disappeared. They are not even making "low ball" offers. With real estate sales in gridlock, foreclosures and defaults become more likely. The incentives for owning a home worth much less than the mortgage are hard to identify. Some people simply walk out of their homes and mail their keys to the bank.

The arguments that the federal government should not be buying real estate are persuasive. No one knows when prices for homes and commercial buildings will recover. To make matters worse the properties have to be maintained in order to retain their value.

But, there are strong arguments to thwart the doubters. Toxic assets may never be worth close to the government's purchase price. The most serious problem is that taxpayers may never see any return at all on that capital. That case cannot be made about land. Keeping up property owned by the government is employment worth creating because it hastens the time that the property can be viewed as valuable and salable. The federal government plans to rebuild monuments in Washington at an estimated cost of $400 million. This money might be better spent on maintaining real estate bought as part of the stimulus package. A home may eventually be sold at a profit. The Jefferson Memorial will never be sold.

The difficult logistics of buying real estate are more political than they are practical. Buying housing in Florida or California might do more to help values recover because prices are dropping faster in those regions. A Congressman from Kentucky might want to see most of the money go to buy farmland in his state. But the same haggling will apply to the infrastructure programs the government is planning now.

Another task which is more difficult than buying real estate is bidding on it. The thousands of members of the National Real Estate Association who are unemployed could be given work and incentives for making this work.

No matter how strong the objection to the government buying property is, one case in its favor is irrefutable. Eventually, the taxpayer can get his money back and may actually earn a profit.

Douglas A. McIntyre

Read "Four Steps to Ending the Foreclosure Crisis."

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