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The Basics

Housing fix: Buy homes for the poor

A stripped, foreclosed house blights a neighborhood, but you have to wonder whether a bulldozer is really the best solution.

By Mark Gimein, The Big Money
MSN Money

One of the more radical solutions to the country's housing market woes is the "homesteading" -- or, if you prefer, squatting -- that housing advocacy groups have proposed as a high-profile answer to bank foreclosures.

Housing group ACORN has launched a campaign of civil disobedience in which people forced out by foreclosure break in and move back into their homes.

Home break-ins are a limited, symbolic and probably ill-advised answer to the nation's housing troubles, but the homesteaders have a point: It is bizarre that houses should stand empty in places where poverty and unemployment are rising. It's not just foreclosure that is the problem for the country's worst-hit areas; it's abandonment. Foreclosures that result in houses sitting empty indefinitely are a social disaster, creating a sense of desolation and dispirit.

In places such as Detroit and Cleveland, where many foreclosed properties are virtually unsalable at any price, federal and local governments already spend significant amounts of money to house the poor in marginal and inferior rentals. In Cleveland and its surrounding areas, the federal government's main housing-subsidy program, known as Section 8, pays up to $694 toward the rent of a two-bedroom apartment or house. In the Detroit area, it's more: The government estimates the "fair market rent" for two bedrooms there at $809.

A sad irony

Meanwhile, if you just go to Realtor.com and search for single-family homes in the Detroit area that are selling for less than $809 -- yes, selling -- you come up with about 80 listings right off the bat. A few of those are duplicates, but there are many more houses like those that just aren't worth listing.

These kinds of prices don't justify listing a house with an agent, and the majority are sold with signs on the lot or by word-of-mouth.

This math isn't complicated: Whole houses are being given away for less than the government pays for a month's rent. And this is happening in places where unemployment is on a rapid tear. That's crazy. So what can be done about it?

A homestead act for federal aid recipients: The reality of foreclosure is that it's not as simple as simply moving families into abandoned houses. By the time a house is selling for $500, it is often uninhabitable. Pipes, attractive fixtures in older houses (some of the abandoned houses in the Detroit area were once, you may be surprised to know, fine examples of Craftsman design), boilers and appliances have been removed by scavengersor by the departing former homeowners.

The proliferation of abandoned houses provides an opportunity for a vastly more rational housing-aid program. Instead of waiting for foreclosed houses to be bought up, federal and state governments can start buying them and offering them to low-income households willing to fix them up and live in them. Some of them would be in close to move-in shape. But many others would need major improvements in the form of sweat equity.

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Fixing up some of the houses would not be instant. Governments would have to provide meaningful support and some financing. But the upfront cost would be low, and the ultimate cost would be much lower than the cost of housing assistance we now provide. And the fact that the houses need work from the new residents would help insulate a program like this from one political and psychological barrier to handing out houses to the poor, which is a perception that recipients of housing assistance shouldn't be getting a better deal than the middle class.

Clint Medford, an investor in foreclosed properties with some insight into the workings of the market, points out that many of the people he deals with in marginal neighborhoods don't have the money for even a minimal down payment. He suggests that an effective government program could hand over the keys to abandoned houses at no cost and let homesteaders take over the deeds after five years of showing maintenance and improvements. That would encourage stability for neighborhoods and families, and offer a real payoff at the end -- all for much less than the cost of the rent subsidies the government already provides.

Continued: Foreclosures are not tax windfalls

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