Should We Ban or Welcome 'Spec' Home Buyers?

Abstract

This paper begins by recounting the extent to which speculating buyers contributed more than proportionately to housing price volatility and the rate of mortgage foreclosure. The second section turns to the way spec buyers deceived mortgage lenders by committing occupancy fraud, claiming falsely that they were buying as owner occupants so they could benefit from more favorable mortgage rates and terms. The third section starts by describing the mischief spec buyers caused home builders and condo developers by signaling phantom housing demand, and degrading ‘for sale’ housing tracts and condo developments by leaving newly bought homes vacant or filling them with short term rentals. The fourth section explores the rationale for a government imposed ban on home flipping. This would be a publicly imposed constraint on alienability.