A 21st Century Homestead Act?

As a fiscal conservative, and a political liberal (in the Milton Friedman sense of the term), I find plenty to be unhappy about with the Save Your Fannie American Housing Rescue and Foreclosure Prevention Act. Sadly, the deed is done, and now the taxpayers are on the hook for untold billions.

But despite the massive government bailout scheme, it appears things are not at all well in some parts of the country.

Out of Detroit, we hear the incredible news that a house was listed and sold for $1. (H/T: Zillow Blog) The author notes that the bank was taking a massive loss just to get rid of the property:

Not only is the bank owner losing any potential value in this property, but it will cost the bank an additional $10,000, “to pay $2,500 in sales commission and another $1,000 bonus for closing the $1 sale; the bank also will pay $500 of the buyer’s closing costs. Throw in back taxes and a water bill, and unloading the house will cost the bank about $10,000.”

In other cities, such as Youngstown, OH, the government is choosing to raze entire neighborhoods rather than deal with the vandalism, crime, and urban blight:

Now, in a radical move, the city – which has suffered since the steel industry left town and jobs dried up – is bulldozing abandoned buildings, tearing up blighted streets and converting entire blocks into open green spaces. More than 1,000 structures have been demolished so far.Under the initiative, dubbed Plan 2010, city officials are also monitoring thinly-populated blocks. When only one or two occupied homes remain, the city offers incentives – up to $50,000 in grants – for those home owners to move, so that the entire area can be razed. The city will save by cutting back on services like garbage pick-ups and street lighting in deserted areas.

It’s time to consider the idea of a new 21st century Homestead Act.The original 1862 Homestead Act fueled western expansion and unleashed the economic power of millions of American families.

In thinking about our current housing crisis, I believe it might be worth considering whether we can harness that individual initiative once again.

Briefly, I propose that instead of forcing banks to pay $10,000 to get rid of unwanted property, and instead of razing neighborhoods at a cost of $50,000 per house, municipalities be enabled to offer foreclosed and abandoned homes for free to any legal resident under the following conditions:

  • You must stay in the residence for at least five years.
  • During your stay, you must maintain the house in reasonable condition and not engage in any illegal activities in the house.
  • It must be your primary residence for those five years.
  • You must pay all property taxes and government fees associated with homeownership, such as for trash removal, water and sewage, etc.

At the end of the five year period, title is passed to the homesteader free and clear.

American families who are willing to work at achieving the dream of homeownership, but have not been able to do so due to financial reasons, can take a chance by moving into an abandoned house, repairing it, maintaining it, and then ultimately owning it.

Nothing defeats urban blight more than homeowners who want to make a nice place for themselves and their children. Nothing inspires harder work than the hope of improving one’s own life.

The fact of homeownership itself would help open further doors. If through homesteading, a neighborhood can be turned around, the value of that house will rise, enabling families to take out home equity loans to start businesses, to send their children to college, and a myriad other purposes for which they have never had capital.

I don’t believe it is necessary to establish any particular qualification beyond legal residency, but it would not offend me to make the program available only to low-income families.

The cost to taxpayers will be minimal, in my opinion. When banks are paying to rid themselves of homes, municipalities can simply offer to take them over in exchange for waiving back taxes and fees. Rather than paying $50,000 to homeowners to entice them to move, just so the city can raze all the buildings, it can simply open up abandoned homes to families who want to make a go of it.

Whatever the cost, however, it cannot possibly be more than the untold billions that the Save Fannie act may end up costing us. The size of the bureaucracy would be magnitudes smaller, as most of the programs can be administered at the local level.

And most importantly, for once, we would actually offer a way for poor families to break out of their cycle of poverty starting with the most elemental fact of building wealth: a home of their own. Yes, they would have to work at it, just as the original 1862 Homesteaders did. But at the end of it, they would become property owners, with pride in their accomplishment.

It’s time to consider it.