‘Capital Insights’ with Jack Kern: The Right to Rent Plan Will Hurt REITs

“I think you’re bluffin’.” John Wayne in The Man Who Shot Liberty Valance, (1962) (C) John Ford

In what I can only attribute to political gamemanship, the Right to Rent program is making its way around the Hill, seeking support for what will surely amount to be the epitome of a liberal agenda. According to industry pundits, labor unions and very socially liberal organizations, those renting homes that are foreclosed need protection against losing their housing due to proceedings designed originally to turn the asset and get it back on the market as soon as possible. Rather than just asking for time to get re-established, the new effort seeks to gain time periods as long as 20 years, supposedly with the idea that it will stabilize neighborhoods and help limit housing blight. In some instances, these very renters are the ones that lost their homes through foreclosure in the first place.

In the last Congress (known as the dumb one), Rep. Raul Grijalva introduced the Saving Family Homes Act, designed to offer former homeowners the ability to rent their house after foreclosure for up to 20 years. Grijalva represents the 7th Congressional District in Arizona and is a Democrat, a seemingly deadly combination these days.

While that effort went no where, it has been replaced by the newly reconstituted Right to Rent Plan, which has as its cornerstone the premise that homeowners in foreclosure can, by right, rent their homes for long periods (perhaps 10 to 15 years) at market rates, determined by independent appraisals. And we all know what has happened with the appraisal industry.

The program would have little new bureaucracy but will be administered by a judge, presumably in a similar fashion to current foreclosure proceedings. If the owner of the home wishes to sell, the new buyer has to recognize the rights of the renter for the entire contract period, regardless of the amount paid or the effective return on costs.

It’s too early to tell how likely this boneheaded move by Congress is to pass, but with the ultra liberal agenda currently in place, it does beg the question, “What are they thinking over there?”

So do what I’m going to do. Find out which member of Congress or committee chair opposes this crazy idea and drive by their house and make a PAC contribution, like Nincompac, Idiotpac or Corruptapac. They all have convenient drop boxes right next to their mail boxes and take cash, checks and bearer bonds.

(Jack Kern is the managing director of Kern Investment Research, LLC, a
market research firm. He can be reached at
301.601.1900 or JKern@KernIRC.com.)