Tags: homeowners | revenue | wealth | income

Enterprising Homeowners Generate Revenue to Limit Expenditures

By    |   Friday, 13 September 2013 08:15 AM

As I have previously discussed, debt securitization led to the recent financial crisis. As a result, an inordinate amount of wealth and income was destroyed.

According to the Federal Reserve Flow of Funds report, from the first quarter of 2007 to the first quarter of 2009, the net worth of households and non-profits fell $15 trillion — or more than 20 percent — from $67 trillion to $51 trillion. Non-financial corporate business experienced a decline in net worth of more than $4 trillion during this time, from $17.6 trillion to $13.3 trillion. The market value of all real estate, including residential and non-residential, dropped roughly $8.5 trillion, from $34.5 trillion to $26 trillion.

Employment as a percentage of population plummeted 5.8 percentage points, from 64.4 percent in December 2000 — when derivatives were deregulated under President Clinton — to 58.6 percent in August 2013, according to the Bureau of Labor Statistics. High unemployment and a poor outlook for bank lending have resulted in lost income of more than $2 trillion since the recession began five years ago, according to Paul Krugman, the 2008 Nobel Laureate in Economics.

Millions of discouraged Americans, he says in his New York Times column, have probably dropped permanently out of the labor force, millions of young Americans have probably seen their lifetime career prospects permanently damaged and cuts in public investment have inflicted long-term damage on our infrastructure and our educational system. Krugman writes, "The failure of [economic] policy these past five years has, in fact, been immense."

Along with former Clinton Labor Secretary Robert Reich, Krugman suggests deficit spending is essential to increase employment, wages and economic growth, and he indicates this crisis is not due to a "mass outbreak of laziness" and individuals "living high on food stamps and unemployment benefits."

Unfortunately, this crisis continues. The Bipartisan Policy Center suggests the U.S. government may default on its obligations as early as Oct. 18 if no legislation is passed by Congress to raise the current $16.7 trillion debt limit. In this case, Social Security payments due Nov. 1 may be delayed by as long as two weeks.

Despite these extraordinarily trying times and poor government policies, private cooperative and condominium owners have taken positive initiatives toward solving their internal debt crises. As wealth and income dried up in recent years, these entities became rather resourceful in raising revenue to help offset future cost increases, such as capital improvement assessments and operating maintenance expenditures.

Real estate taxes have risen substantially since the recession in areas like Manhattan to help offset lost income and sales tax revenue. Ironically, labor and energy costs continue to rise despite a recessionary and stagnant economic environment over the past five years.

However, homeowners have successfully raised revenues by selling common space, such as hallways, that permit owners to combine units. These "joinders" typically increase the property market value substantially. In essence, the purchaser of the hallway pays a fair market value to the community for the immense increase in equity.

Portions of hallways have sold from $34,000 to $52,000 in an average Manhattan building, Rose Tallis, an associate broker at Halstead Property, tells The Times. A 30-year, fixed-mortgage at current rates for these discounted amounts would generate $100,000 to $150,000 in proceeds to the lender.

This model is to the benefit all shareholders and owners if executed properly. Poor management in this regard may be considered a breach of fiduciary responsibility by the board of directors and can result in their removal if the shareholders and owners deem this necessary.

The creators of financial derivatives enabled capitalistic excesses that negatively impacted our economy in vast ways. The ill effects continue to this day. With the help of innovative and creative private initiatives, such as equity sales by homeowners, we can accelerate our economic recovery going forward.

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The creators of financial derivatives enabled capitalistic excesses that negatively impacted our economy in vast ways. The ill effects continue to this day.
Friday, 13 September 2013 08:15 AM
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