PoliticaLee

Mr. Cuban (we’ve never met, so I’ll stick with formality),

I’ve been reading your blog for many years and have offered comments, thoughts, and replies over time, but with today’s post, I felt driven to write a bit more and thus turned to my own publishing outlets to do so.

This post is a reply to one small part of your blog today titled, “Thoughts on Our Federal Government, Taxes and Small Business and More.”

In it you propose the government should tear down foreclosed houses to build up the housing market.  Excerpting this portion of your post here, your precise argument is:

 Tear Down Foreclosed Houses.

There is no question that the housing market has a huge impact on the economy.  There is also no question that the housing market is one of supply and demand. There is also no question that the government owns hundreds of thousands of foreclosed homes and growing. Every day those homes cost money to maintain and service. It’s expensive and they hold down housing prices. The solution ? Tear them down.

Tearing down foreclosed homes by the hundreds of thousands will be the ultimate infrastructure project. Thousands of jobs bulldozing and clearing homes. Reduction in inventories. Reduction in overhead to service the vacant homes. The quicker you take the homes off the market, the sooner the market for new and used homes will recover and prices will go up. I had been planning on blogging about this several months ago, but Time.com beat me too it . http://www.time.com/time/magazine/article/0,9171,2090368,00.html .

Bottom line is that best way to build up the housing market is to tear down every foreclosed home owned by government agencies. It will not only energize the housing market, but the process of tearing down the homes will create jobs for less educated/skilled labor.

As always, I agree with/like/respect 90%+ of what you say in your posts, but you’re losing me by suggesting we tear down well-built homes to help the economy.  I understand that doing so creates jobs, requires investment, and also reduces inventory so as to increase demand (and therefore pricing) on new homes.  What I don’t understand is why this is a good thing.

On the one hand, the housing prices skyrocketed because people were impatient and jumping into homes they couldn’t really afford based on mortgages that they never should have been eligible for in the first place.  On the other hand, those people who didn’t take advantage of the misplaced mortgage rates were priced out of the market and in many cases still can’t get into it.

As anyone who has searched for homes in the suburbs of New York can attest to, finding a home at a reasonable price, with enough space to raise a family, have a barbequeue, and a couple of cars is a lengthy, difficult process that leaves those making even that “250k per year” you were talking about earlier in your post unable to find the right home.  Those who can’t find their home continue renting apartments in the city that would be better suited for college grads.  The supply in the city therefore stays low, the rental market rises and new entrants to “real life” are unable to save enough to invest in themselves or the future.  It is a cycle that has continuously raised housing prices (both for rent and purchase) to insane levels and, to your other points, does a lot more to limit job creation than a change in the tax rate could.  It also punishes those who try to live within their means as others who shouldn’t be able to afford a given house are taking them off the market anyway.

If forced to tear down all of the homes that have been foreclosed on for the purpose of building demand, we will continue to punish the prudent for the mistakes of the segment of the population that artificially inflated housing prices over the last decade or so.

Instead, I have a different suggestion: Ebay (or the equivalent).

Your point about government having to pay for maintaining and servicing foreclosed houses is a good one.  They shouldn’t do that.  It isn’t the role of government.  Here’s what should happen (or some reasonable approximation of it from someone who knows the details a bit better):

• From here forward, the government should not be allowed to hold a foreclosed home for longer than 90 days*.
• Upon foreclosure, the home should be inspected within 30 days, and demolished if it isn’t in good shape.
• Assuming the home is habitable, there should then be a 30-day open-house/listing process so people and private companies can see the home and assess value for themselves.
• There should then be a 15-day ebay-style auction and go to the highest bidder, and for the sake of this post, I’ll suggest it actually be done on Ebay rather than creating a whole new system the government has to maintain for the purpose.
• The winner has 15 days to close and pay, and like on Ebay, if that first bidder falls through, there’s a “2nd-chance offer” made to the runners up at their highest losing bid.
• This goes on for the shorter of 15 days or until the house is sold.

Anticipating *some* of the counter-arguments here, I’ll preempt a few:

• Yes, under this proposed system, it is possible the home will sell for far less than it would have been appraised for, but I think that is unlikely given that resellers, agents, and other interested parties be able to buy houses for arbitrage under those conditions.  And, even if it DOES sell for less than it should, then the government has facilitated the American dream, and has eliminated the expense of maintaining the house that you point to as the drain on the current system.
• No, the original homeowners having to see their house go to someone else at a rate they *could* have afforded isn’t relevant.  First, the original owners are free to participate; and second, foreclosure is about a breach of contract issue, not a family’s right to live in a given house.
• Yes, there’s a cost of credit check/eligibility to participate in the auction that would have to be administered, but I am certain the cost of administering that process would not be prohibitive.  I think this is fair to say both because it would rely on the current mortgage qualification processes which buyers have to go through anyway, and because destroying the house doesn’t eliminate the transaction cost of eventually selling the land anyway.

I agree that the government is playing the wrong role in holding vacant houses, but I have to disagree when you argue that the right thing to do to build the economy is to destroy and increase consumption as well as resource depletion.

Let the housing prices come down.  Let people making $250k per year find a house for under $1M in the suburbs; let people making less find homes that don’t feel like apartments.  Enable people to move out of the cities and into places they can invest in.  Then people will stop hoarding the money for down payments, will buy and fix and develop and create lives for themselves.

I have no problem with the government creating projects to employ less educated/skilled labor, but how about something less destructive?

As always, feel free to explain what I’m missing here?  I don’t claim to be an expert on this subject…

*Note: All time periods proposed here are meant as a starting point, the real length of time offered should be established and transparent to all, but should be based on how long it reasonably should take to get these things done, optimizing for actually selling with a lesser level of investment required by the government than maintaining or demolishing the house, not highest price.