Unintended consequences: Does the home-buyer credit hurt landlords?
The law of unintended consequences seems to be at work in the real-estate market. Even as an $8,000 tax credit is helping to create more first-time home buyers, Reis Inc. reports that the vacancy rate for apartments is at a 23-year high.
Causation is difficult to prove, but it looks like our attempt to solve problems in one part of the real-estate market may be making things worse in another. As I mention in today’s column:
(Ted) Gayer, co-director of economic studies at the Brookings Institution, says the housing market’s basic problem is an imbalance of supply and demand. Too many houses were built during the bubble years, and now the recession has lowered the rate of household formation, which is a fancy way of saying that many young adults can’t afford to move out of their parents’ houses.
Merely turning a renter into a buyer does nothing to address that imbalance, Gayer says. For every seller who’s happy that the government helped unload his or her property, a landlord somewhere now has a cash-flow problem. “If you wanted to close the gap, you need to have either more people or fewer houses,” Gayer said.
Reuters mentions that apartment loans “have led the real-estate industry in defaults,” which of course isn’t good for our teetering banking industry. Instead of reacting to Realtors’ lobbying efforts, Congress should let the home buyer’s credit expire and let the real-estate market correct itself.
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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. 
Of course it hurts landlords and makes them more likely to default. It also hurts people who are wanting to sell and instead, are trying to rent out their property while waiting for a turnaround in the real estate market.
I saw the turn in the market back in May 2006 in St. Louis after my tenants signed a 1 year lease. I wanted to sell at the time, but the lease had just started and it would have been difficult to break the lease with the tenant. I listed my property in May 2007 after the tenants moved out and finally sold it in May 2009 for a significant loss. However, I feel that this loss is not near the loss which will occur once the government subsidies end (buying treasuries to lower mortgage rates, $8k first time homebuyer credit, etc.)
What?
Someone from the PD wants Congress to stop meddling and “let the real-estate market correct itself”?
Do your editors know that you are advocating a free market with limited intervention as a solution to a problem? Shouldn’t you be advocating the use of tax dollars to create new bubbles in an effort to ease the bursting of old bubbles?
After all, isn’t it better for the economy to slowly drown than to have a sharp ( and painful) correction that serves as a wake up call to those with shoddy business practices and allows for the recovery to begin that much quicker?
Instead of new private capital flowing into new businesses and strong existing businesses in an effort to lead us out of the recession, shouldn’t we just continue to use future tax revenues to prop up failed businesses as long as possible so that a few people can postpone the pain that will inevitably happen anyway?
I imagine you’ll be receiving a pink slip soon.
Practically every government tax or subsidy helps some people at the expense of others.
This and any other tax credit reduces revenues to government and thus creates the need to replace them with other taxes, some of which will fall on the same people and some on others.
And to the extent that this program increases the demand for housing, and thus the cost of it, it shifts money from house buyers who are not eligible for the tax credit, and owners of rental units, to house sellers. I’m not aware that the “losers” in this deal are necessarily any less wealthy or more deserving than the “winners,” but the winners obviously have more political influence.
In a recent study done by the Rosen Group,commissioned by Fix Housing First, it was determined that the homebuyer tax credit has been the primary cause of the recent boost in home sales…I wrote about it at:
http://realestateconsumernews.com/home-sellers/homebuyer-tax-credit-has-been-primary-cause-of-recent-return-of-buyers-to-market-according-to-study/
It does have negative effects for the landlords and owners. These are inevitable things. Thanks for sharing this informative post of yours. Good luck. By the way, I know a real estate coach who could also help many in the real estate industry make money despite the current crisis.
Great article.
Dennis: Of course an $8,000 credit will ‘boost’ home sales. And the cash-for-clunker program helped increase new car sales. What Liberals don’t understand, however, is that the money actually has to come from some other person. When government steps in to help someone, it must absolutely hurt someone. The government just redistributes wealth, it doesn’t create wealth. If we had a government-subsidized program to burn down any house that was over 10 years old, would that make society richer? Of course not.
Well, I deal with some of these apartment developers, and they aren’t worried. Frankly the homebuyers tax credit is a drop in the bucket compared to the market as a whole, and the buildings I deal with are all full or mostly full.
Funny though; this conversation didn’t come up from conservatives in 2004-7, when homebuying was at an all-time high.
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