Expanding housing tax credit would only expand the waste
Bloomberg is reporting that Senate leaders are close to hammering out a deal to expand the home buyer’s tax credit, which is due to expire Nov. 30. The deal would extend it to cover any purchase that’s under contract by next April 30, and would offer the $8,000 tax break to “step up” buyers as well as first-time buyers. “Step up” buyers are defined as people who have lived in their current house for five years and are buying a new one. That new house could cost up to $800,000.
This sounds like a spectacularly bad idea. As I’ve said before, the tax credit is already a wasteful program, and this would only make it more so.
I’m far from alone in that opinion. The Center on Budget and Policy Priorities issued a report today calling the credit “very inefficient.” Douglas Rice and Robert Greenstein write:
Furthermore, expanding the credit to people who already are homeowners will do little to reduce the excess inventory of homes or to stabilize home prices. When existing homeowners purchase a new home, they simultaneously put their current home up for sale. As a result, there is no net effect on supply or demand in the housing market.
Simon Johnson and James Kwak also make a strong argument against the housing credit in today’s Washington Post. If the publicity about a 4-year-old tax cheat wasn’t enough to kill this awful program, perhaps nothing is.
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(7 votes, average: 2.14 out of 5)
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
While tax credits may just be a “shot in the arm” and not necessarily a long-term fix for the housing market, I think they are worthwhile at this point..This is the worst housing market I have seen in the 30 years I have been in the business and it needs some help…The credit has been just enough to help give buyers that are “on the fence” that little nudge they need to move forward, plus gives them a little bit of insurance just in case prices have not bottomed out..There was a study done by the Rosen Group that showed the tax credit has been the primary reason buyers have returned to the market…I included the info from the survery as well as info and a link for Fix Housing First, a coalition that has been working to extend the tax credits, in a post I did at:
http://stlouisrealestatenews.com/real-estate-market/homebuyer-tax-credit-has-been-primary-cause-of-recent-return-of-buyers-to-market-according-to-study/
Dennis your post holds truth but the real problem is jobs. It is really that simple until the unemployment rate starts going south instead of north ded or the people who still have jobs feel secure in them the housing market will not be “fixed”, the tax credit is simple a band aid.
The mass lay offs maybe few and far between at this point but the person here and three people that are being laid off everyday is still going on.
We had three people come in yesterday alone who lost their jobs last Friday wanting to know how to take advantage of the mortgage relief programs.
Dennis, this is the worst housing market because we had the biggest housing build out ever only a few years ago. The inbalance will be only solved in time when only a reasonable number of new homes our built. On top of it, giving tax dollars away without any long term benefit isn’t solving anything expecting making us more indebted to other nations or requiring the Feds to print excess money that can only be resolved in the long term by inflation.
Furthermore, this is benefiting the same people who made a ton of money by convincing homebuyers that the overvalued price was worth it. In other words, the mortgage broker who got his cut and the real estate agent who gains more on a overvalued property then when that is reasonably priced. This tax credit is another form of corporate welfare on par with the banks.
Think how many jobs we could create by taking these funds and rebuilding our roads, bridges, schools, dams, etc. and the benefits to our economy year after year after year. Their was a time when politicians had great things built for the benefit of society from Hoover Dam to the Interstate System.
Tax Credit Update: It’s getting closer, the Dodd-Lieberman-Isakson Amendment is now part of the larger unemployment bill and should be voted on by the Senate this week…complete details in an update I just did at:
http://stlouisrealestatenews.com/real-estate-market/home-buyer-tax-credit-update-november-2-2009/
Instead of extending the deadline for the credit, maybe they could relax the 3 year requirement instead. If you have to live in it for 2 years in order to avoid the profit tax (up to a certain amount) why can’t you qualify for the credit after 2 years out of one? I sold my last house 2 years and 10 months before I built my current house (which isn’t even worth as much as it cost to build.) Missed it by 2 months.