Federalizing the New Orleans Real Estate Market

The Wall Street Journal is rightfully skeptical of Rep. Richard Baker’s plan to let the feds take the reins of the New Orleans housing market:

[…] Mr. Baker is normally a free-market advocate who has been brave enough to challenge the bad practices of such politically powerful institutions as Fannie Mae and the New York Stock Exchange. So it’s surprising that he is now proposing a new Fannie Mae-type entity called the Louisiana Recovery Corporation (LRC). Under the Baker plan, as many as 200,000 properties would be purchased by the LRC. Current homeowners in these areas would receive 60% of the “pre-Katrina value” of the house, and banks would receive 60% of the unpaid mortgage. Uncle Sam would clean up debris, rebuild homes and whole neighborhoods, then put the refurbished properties up for sale. Mr. Baker tells us he expects revenues from these sales would recoup some of the costs. Given the government foulups so far in New Orleans, the idea has a superficial appeal. But the closer one inspects the details, the more it looks like a potential long-term disaster of its own. In a single stroke, the Baker plan would make the U.S. government the largest property owner/real estate agent in New Orleans. And property development is not the federal government’s strong suit, to say the least (think HUD and Cabrini-Green in Chicago). By paying out at pre-Katrina values, the feds would also deter private investors from going in and buying up properties and thus creating a new market floor. Who knows what prices should be if Uncle Sam is setting them at what might be inflated pre-Katrina values? This is a recipe not for a rapid turn-around, but for making the feds the Donald Trump of New Orleans for a decade or more.

Given their track record in property development (and Cabrini-Green is a perfect example), any plan to let the feds — or even the State of Louisiana for that matter — take over the New Orleans real estate market would be inviting disaster. The private sector is in a far better position than the government to determine appropriate land values and make decisions on where it makes sense to reinvest. For Reason’s take on rebuilding New Orleans, see here and here.