Rent control to be argued before the Supreme Court?

While rent control laws do not affect Central Pennsylvania at this time, investors should take note of a New York case that may shortly be considered by the U.S. Supreme Court. An article by Professor Richard Epstein from earlier this year identifies a pending challenge to rent control in which the Supreme Court has invited responses from New York City and the tenants directly affected:

Supreme Court Justice Antonin Scalia exposed the deeply antidemocratic nature of rent control in Pennell v. City of San Jose (1988). If the government thinks some high social end is served by allowing tenants to sit on someone else's property in perpetuity, then it should use public funds, after democratic deliberation, to buy or lease the premises for market value which it can then lease out to particular tenants. The correct way to handle this issue, he wrote, is by "the distribution to such persons of funds raised from the public at large through taxes," and not to use "the occasion of rent regulation to establish a welfare program privately funded by" landlords.

Mr. Harmon's grievance should resonate on social as well as personal grounds. Rent control and rent stabilization are inimical to the long-term health of New York City. Ordinary tenants paying market rents contribute their fair share to the public treasury. By contrast, rent-controlled tenants on lifetime leases who have a specially privileged legal status are a constant drain on the community, discouraging investment in residential rental real estate by posing a persistent if inchoate threat of subjecting future properties to rent control.

Hoover Daily Report, 1-4-2012

Renting vs. buying

Reuters provides an interesting discussion of the benefits of renting vs. buying one's residence. The article makes a strong case that renting is a better long term strategy. We may have to face the unpleasant reality that the bursting of the real estate bubble has permanently changed the way Americans think about real estate and home ownership.

Record gasoline prices

Associated Press reports that gasoline prices "have never been higher this time of the year." Even though rising gasoline prices are obvious to everyone who cares to notice, this news is particularly disturbing to those who are counting on a recovery in the real estate market. Do not expect a recovery in real estate while the economy is crippled by record gasoline prices (unless you are thinking about an increasing number of tenants due to continually rising foreclosures).

NAR reports that housing sales overcounted since 2007.

A disturbing item from CNBC and the NAR indicates that housing sales have been overcounted for the past four years:

Data on sales of previously owned U.S. homes from 2007 through October this year will be revised down next week because of double counting, indicating a much weaker housing market than previously thought.

The National Association of Realtors said a benchmarking exercise had revealed that some properties were listed more than once, and in some instances, new home sales were also captured.

This information has implications for our understanding of inflation data over the past few years. It would appear that the collapse of the housing bubble was more severe than we originally believed, despite massive federal government spending to prop up the market.

Marcellus shale drilling vs. mortgage company restrictions

As natural gas drilling becomes more common in Pennsylvania and elsewhere, lenders are becoming more reluctant to make loans and accept mortgages on properties on which natural gas drilling takes place. Lenders have placed restrictions on natural gas drilling as a condition of approving loans. Lenders do this out of fear of liability for environmental damage or that environmental damage will reduce the value of the mortgaged property.

These new lending policies have taken borrowers and real estate sellers by surprise, according to last week's New York Times:

As natural gas drilling has spread across the country, energy industry representatives have sat down at kitchen tables in states like Texas, Pennsylvania and New York to offer homeowners leases that give companies the right to drill on their land.

. . . .

But bankers and real estate executives, especially in New York, are starting to pay closer attention to the fine print and are raising provocative questions, such as: What happens if they lend money for a piece of land that ends up storing the equivalent of an Olympic-size swimming pool filled with toxic wastewater from drilling?

Some lenders have placed outright prohibitions on drilling on mortgaged properties, while others require the owners to obtain permission from the lender. Other lenders will not approve loans if natural gas drilling already takes place on the property.

The Marcellus Shale development has tremendous potential to increase property values, benefit Pennsylvania's economy and blunt the effect of skyrocketing fuel prices. But property owners especially must be aware that signing a natural gas drilling lease might limit a buyer's ability to obtain a mortgage to purchase the property in the future. The income and resulting increased value from the gas lease should be weighed against potential borrowing problems of future buyers and the resulting decrease in price resulting from a restricted pool of buyers.

Homeownership decline in 2010

The AP and the Census Bureau report that homeownership saw continued nationwide declines in 2010:

The American dream of homeownership has felt its biggest drop since the Great Depression, according to new 2010 census figures released Thursday.

The analysis by the Census Bureau found the homeownership rate fell to 65.1 percent last year. While that level remains the second highest decennial rate, analysts say the U.S. may never return to its mid-decade housing boom peak in which nearly 70 percent of occupied households were owned by their residents.

Inflation surges in September

From CNBC comes bad news on the inflation front:

U.S. producer prices rose more than expected in September to record their largest increase in five months as gasoline prices surged, a government report showed on Tuesday.