There are two factors that are currently plaguing the housing market and ultimately hampering the economy as a whole. The first is clearly an excess in supply of owner-occupied housing. Excess supply leads to a reduction in housing values as there is underutilized capacity. Second, there is a serious problem with “negative equity” in the homes that are currently owned. This is the classic case of the underwater mortgage that is so prevalent in America right now. Peter Orszag, former CBO and OMB Director in the Obama Administration, says, “Dealing with excess inventory by shifting vacant properties into the rental market would help to stabilize prices and thereby mitigate, to some degree, the negative equity issue.”

A novel way to stimulate demand for home purchases proposed by Kyle Jividien of Alamo Appraisal Group in San Antonio and economist William Wheaton of MIT among others would be to “provide a tax write-off to investors who buy vacant houses and rent them out.” The catch here is that investors would have to hold on to the properties as rentals for an extended period of time. Fostering this kind of investor behavior will most likely spur demand for the rental market and encourage the use of professional property managers. This type of creativity that seeks to incentivize investors is what the economy needs right now.

You can read more about this here: Peter Orszag’s article on Bloomberg.