Once again, new homebuyers can enjoy an $8000 tax credit on their first home. Once again, renters can enjoy no such break. Is this the best way to stimulate our flagging real estate economy?
Maybe not. Let's look at an argument from Ezra Klein of the Washington Post:
.....And what will boost me into that lush future? Well, the fact that I make a fair amount of money for someone my age. The fact that my grandparents put away a bit of money to help with my eventual down payment. The fact that my earning potential looks likely to rise, which reassures my bank. The government is in effect giving me a cash reward for being pretty well-off. That's a rather dumb way to apportion resources. More to the point, it's not necessary. The economics and emotional rewards of owning a house are compelling enough without the mortgage deduction. If you want to give low-income homebuyers additional help, that would make a lot of sense, particularly given the long-term importance of assets in bolstering financial security. But giving it to everyone who buys a home of any size is simply a regressive attack on renters.
This is an interesting point. Effectively, Klein believes that by rewarding those already financially solvent enough to qualify for a home loan with an additional tax credit, we are continuing a sort of well-off get more well-off policy that won't help us as the number of not well-off Americans continues to climb.
Of course, one could argue that housing programs, such as those offered under HUD, do help the low income buyer. And indeed, while not exactly a free ticket to home ownership, HUD does offer some assistance to the country's poor.
Left out then are the middle class, those at the lower end especially, who struggle to make a paycheck last the month. For those many millions of people, the ability to save up the needed 20% down (plus additional savings) needed to buy a home comfortably has dwindled. Thus, these Americans rent. And rent. And rent.
Many people point out that renting is often preferable to buying, because of housing prices-- particularly in the Bay Area and particularly in this economy. A person can get a lot more for the money by renting than buying. Plus, the renter can possibly take advantage of rent control, and isn't out of pocket for repairs on the home.
But the US Government still believes that stability comes from home ownership, not renting. Otherwise, the homebuyers credit would have no justification.
Why not a rent credit instead? Before the commenters scream "Bolshevik," note that the idea is not a new one. As early as 2006, a California Republican candidate David Nelson Jones proposed a "Renter's tax Break."
I propose a tax break for renters which will be deposited into a down-payment account towards a future home purchase. Republicans believe in an ownership society and this proposal will benefit everyone because people will literally be investing in their future homes.
.....For every dollar spent renting their current residence, they will receive a 5% tax break. This tax break is pretax savings that will be placed in a Future Homeowners Account (FHA). The money in these accounts will be used on the lenders' sides as financing for residential construction projects. When the renter prepares to purchase a home, the funds from his FHA can be used for the down payment. Every three years the account matures to cash payout (up to %50) if the renter does not purchase a home.
In summary, this plan would have benefited renters who'd have saved on taxes "in a responsible fashion.....bridging the gap to owning a home." Landlords too might have enjoyed the "likelihood of people renting in one place for a set period of time" and incentive to make timely rent payments. Realtors would certainly have found a more "qualified clientele" and "increased inventory from increase in new home construction." On that same note, construction companies would have appreciated funded construction and the qualified buyers for them.
And even if the money in a renter's FHA did not go to fund new construction, but instead was used for some other social/economic need, or even if it sat idle, waiting for eventual harvest, such accounts would have helped banks. Buyers would no longer need the crazy 100% financing that so many financial institutions over-extended themselves to offer. With more buyers who truly qualified for loans, we could have reduced the hazards unqualified buyers are creating on the market now.
Four years later, we have to wonder if California real estate would look different if Jones' law had passed.
In the end, if our leaders truly believe that granting people ownership of their own four walls is the ticket to national prosperity, the Feds might benefit from thinking outside the box.
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