Bulldozers for the Win!

A few days back there was a story online about Bank of America bulldozing a bunch of houses in Cleveland. With thousands (and possibly millions; nobody really knows for sure) of homeless people in the United States, and millions (possibly tens of millions; nobody really knows for sure) of people one paycheck or less from being foreclosed out of their homes, this seemed almost perverse. People were making appropriate (and mostly appropriate) comments at the bottom, ranting and raving about how cruel and heartless this action was, and how its another thing we should all hate B of A for doing – thus completely missing both the facts of the case and the point of the exercise…

First off, the story also indicated that the bank had donated over a hundred houses to the City of Cleveland for low-income housing; they’ve also donated over 150 buildings in Detroit and are now planning to repeat this program in nine other cities. That won’t end the housing crisis in America, but it’s a good start – and they certainly don’t have to do any such thing. If you read the story carefully, you’d also notice that once B of A gets done bulldozing the selected properties, they’re also going to donate the land underneath them to the City for use as green space (parks and whatnot), although Cleveland could easily sell the land to developers (to raise money) or use it to build public buildings of various kinds (including more low-income housing). But that’s not really the point either…

The actual point of these operations is that the houses being destroyed are ones that the bank owns but can’t give away, let alone sell, usually because they would cost more to repair to a point where you could actually live in one than they would be worth if you did. However, these properties cost B of A money every day they’re carried on the books, and they have the potential to cost the bank a lot if someone were to break into one and injure themselves (to take only the most obvious annoying possibility). Bulldozing the structures eliminates the liability issues, and donating the property should remove the carrying costs; if they do it right the resulting tax credits might even cover the company’s expenses in foreclosing on the mortgages in the first place. But this still isn’t the point…

The laws of supply and demand state that it isn’t possible to charge as much for something that is in vast supply as you can for something rare. If people can obtain a house just by asking for it, they are unlikely to pay money for one, which means the housing market will just get worse. Lowering the supply of anything has the effect of raising the price by an amount proportional to both the reduction and how much people want the item in question, which in this case means raising the price people will pay for a house. Granted that this will also result in people wanting to take our home loans, which will benefit Bank of America, it will also benefit anyone in the country who owns real estate or builds, repairs, buys or sells houses – and anyone who does business with those companies and people…

I’m not saying that Bank of America is comprised entirely of angels looking out for the good of the country; I’m not even saying that you shouldn’t hate Bank of America if you want to. I’m just saying that if you’re going to do so, you might want to select something they’ve done that is actually bad…