It never ceases to amaze me how when the nation is asked to respond to a natural disaster, and Congress is called upon to produce public funds to assist in the recovery, that there are cagey entrepreneurs who succeed in contorting the laws to benefit their private projects. Case in point: The Gulf Opportunity Zone Act of 2005, which was the law passed by Congress to provide tax breaks to developers willing to rebuild in the parts of Mississippi, Louisiana and Alabama devastated by Hurricane Katrina.
All fine, expect the law was quietly tweaked by a friendly lawmaker—all the evidence points to Sen. Richard Shelby (R-Ala.), a University of Alabama graduate—so that the Gulf Zone was drawn to include the Tuscaloosa area even though it sits about 200 miles from the Gulf Coast and received only heavy rain and light wind damage from Katrina.
So why was the zone drawn this way, you might ask? Jay Reeves of the Associated Press explains why, in this story in USA Today. Because politically connected developers are building about 10 condominium projects around Tuscaloosa, some of which are asking upwards of $1 million for units with granite countertops, king-size bathtubs and Crimson Tide décor, including crimson-red couches and Bear Bryant wall art.
As Reeves explains, some of the units will be sold to Bama fans who just want to have a ready place to stay on football weekends, others will be marketed to real-estate investors who will purchase the condos with plans to rent them to Bama fans in town for the big game.
Reeves quotes Kelly Hayes, a tax attorney in Michigan, who calculates that “an investor could write off more than $155,000 of the cost of a $300,000 condo in the first year and use the savings to lower his taxes on other rental income…Without the GO Zone tax break, the depreciation benefit from a single year on such a property would typically be just $10,909.”
And yet other areas hit hard by Katrina complain they can’t attract investment.
My enlightened analysis is that this stinks.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.