There's been some negative coverage of the home buyers tax credit. (Photo: iStockphoto)
Although the real estate industry did not get everything it hoped for when the home buyers tax credit was recently extended and expanded, they were more than happy the program was continued.
But for some, there’s a lot not to love about the home buyer tax credit.
A survey of naysayers:
• “Congress threw good money after bad this week when it voted to extend and expand a wasteful home buyer’s tax credit set to expire at the end of the month,” the New York Times stated in its lead to an opinion piece on Nov. 6. The Times went on to say that “… housing analysts were finding that the tax credit did little for home sales. Between 80 percent and 90 percent of the people who have bought homes using the credit would have purchased those homes without it. To put it another way, the tax credit has been wasteful spending, not stimulus spending.”
• Simon Johnson, a professor at MIT Sloan, and James Kwak, a Yale law student and software entrepreneur, wrote in the Washington Post: “This is a bad idea. The main argument for the tax credit is that it stimulates the economy and stabilizes the housing market. Seen purely as a stimulus, the tax credit is highly inefficient. Putting cash in pockets does have a stimulative effect because some of that cash will turn into consumption. But as far as stimulus measures go, it has a low multiplier (the ratio of new economic activity to stimulus spending). By contrast, we could take the same cash and hire more teachers, police officers or soldiers to fight in Afghanistan. We would get more economic activity, and the government would get something for its money.”
• Ted Gayer, the co-director of economic studies at the Brookings Institute, offers this summation of the program: “If the goal of extending and expanding the home buyer tax credit is to spur housing sales, an optimistic assessment is that we will spend $121,000 in tax revenue per additional housing sale. Again, this is a very poorly targeted subsidy. Putting aside the high cost, the goal of increasing housing sales is misguided. The core problem with our housing market is that the bubble led to too many homes being built, and the recession led to a decline in household formation. Even if the tax credit spurs house sales, many of these transactions will just shift renters into buyers, which does not address our excess inventory of houses. Indeed, one unintended consequence of the first-time home buyer tax credit could be the worsening of conditions in the rental market.”
These are many more opinions on the home buyers tax credit out there, but these come from the most reputable sources — two of the top newspapers in the country and the prestigious Brookings Institute.
Let’s face it, the Cash for Clunkers program was a handout to the auto industry and the home buyers tax credit is the same for the real estate and banking industries. Yes, some people benefited with some extra cash in their pockets, but these are the same people who had sufficient income to purchase a car or a house — two of the more expensive goods in our society.
So, this begs the bigger question. Do these handouts help and even if they do, are they helping those that need it the most?—Rick Hazeltine