A Bailout Alternative: Section 8

Adapting the Section 8 housing subsidy model, government might just find a way out of the cascading housing crisis. At the root of the problems in our credit markets and financial institutions are falling home prices nationwide; a phenomenon never before seen in America.

A program which subsidizes rents of homes would do two important things helping to abate the current crisis: (1) guarantee investors a baseline rental income –effectively allowing investors to accurately value a property based on cashflows guaranteed by the government– and (2) help individuals in danger of foreclosure by providing them with a stable place to live.

A subsidy plan could also be used to incentivise investors and financially troubled home owners to take actions which might aid our troubled economy in other areas…and god knows we need the help.

UPDATE [12.15.08]
Robert Maniscalco, my real estate law professor, brought up an interesting point today in class. Years ago, income producing property was depreciated over a twenty year life, rather than the current 39
year schedule. What a great compliment this would be to an expansion of the Section 8 rental subsidy program above. It would effectively result in a doubling of the depreciation write off (increasing investment returns) and a decrease in basis (reducing the incentive to sell). Rather than throw money at insolvent lending institutions, ideas like this would do much more to help the housing market find a bottom and save the U.S. tax payers a few bucks.