A Common Thread in the Home Buyer’s Tax Credit and ‘Cash for Clunkers’

Back in the days of "cash for clunkers," which saw the Obama
administration send nearly $3 billion in taxpayer-funded rebates to
boost the sagging auto industry, our Ryan Avent and several other
economics wonks pointed out
an inconvenient fact: Many participants in the program would have
bought cars anyway, and the rebates only pulled their purchases forward
in time.

Now it seems that the tax credit for new home buyers, opened up to
even existing homeowners as part of an $11 billion expansion passed in
November, is having a similar effect on the homebuilding industry.

As MarketWatch reports
from the Las Vegas International Building Show, homebuilders are still
mourning the housing bubble that popped so perilously as subprime
mortgages imploded, but they are cautiously optimistic about this year
as compared with 2009. Still, mitigating factors persist — and here’s
one:

Payback from the expiration of the home-buyer tax credit.
"The tax credit is pulling people forward who were in the market
anyway. So the sales pace isn’t quite as vibrant as suggested by the
raw data. There could be a payback that materializes (in July) when the
current version expires," Sullivan said.

Unless, to the chagrin of environmental groups and many, many voters
who rent, Congress decides to extend the sprawl-enticing tax credit one
more time in the summer. Lawmakers are often reluctant to let temporary
tax credits fade away when industries are lobbying in favor of their
extension — even if the underlying economic logic is demonstrably
shoddy.

And
if Transportation Secretary Ray LaHood’s comments at the Detroit Auto
Show this month are any guide ("You see no criticism of ‘cash for
clunkers’ in America"), even the auto rebates could make a return.

  • DJB

    I strongly object to tax subsidies for low-density, automobile-dependent housing. If we’re subsidizing homeownership, we should be subsidizing only homes that are built densely in walkable, mixed-use neighborhoods.

    Is that too much to dream for? A sane housing policy?

  • What ever happened to the EPA’s hope to reduce VMT?

    Instead of eliminating the subsidies for this, the most wasteful of home styles, we’re trying to fight for “cap and trade” and canola oil to run our economy in the face of oil shortages.

    Anyone else feel like a pre-collapse Mayan? Just keep workin’ those hillside corn fields brother, the higher ups assure us that all is well.

  • We should get a subsidy to live in Downtown LA.

  • Erik G.

    Canada has no tax deduction for mortgage payments. Notice how lively their cities are when renting has less of a penalty?

  • It’s not widely known (mostly because the media never reported on it) that a “Transit Vouchers for Clunkers” provision was a part of last year’s stimulus bill — Sec. 3 (b)(2) of S 247 (the senate’s version of the ‘Cash for Clunkers’ vehicle redemption program bill) — and was sadly dropped before final passage.

    This provision, which was largely the work of Senator Feinstein, deserves reinstatement, as it could be of great benefit to low-income persons who could greatly benefit from a multi-year, even multi-decade public transportation voucher received as a replacement for a true low-mileage ‘clunker’ car. And as it could be of great benefit to the environment, as a transition from a personal car to public transit effectively halves a person’s transportation-related carbon footprint.

    And because it would help raise public transportation’s profile in car-centric America. Look at the attention that has been festooned on the (New Car) Cash for Clunkers program.

    Public transportation advocates and agencies should press for the Transit Vouchers for Clunkers provision’s reinstatement, and ask for public support for this development, perhaps in an online petition out of APTA, CTAA, T4America, or maybe the Streetsblog.

    I value and depend on public transportation and want to see it thrive. A reinstated “Transit Vouchers for Clunkers” provision would bring additional monies to public transportation in the U.S., and my home state and city of California and Los Angeles.

    (I carry a certain protective feeling about the idea, having been one of its earliest advocates, in a short commentary carried in the Los Angeles Times’ Letters, April 12th 2009.)

  • Rob

    Owning a home is part of the american dream.

    This means that having stuff is at the heart of the american dream and is bound to fail.

  • DJB

    Why fight homeownerhsip though? It’s a huge deal in American culture, and one of the main things people like about sprawl. We should be making the point that homeownership can happen in cities too, although perhaps in a different form (condos in apartment buildings, rowhouses, small-lot detached homes).

    As long as “homeowership” conjures up images of 4-to-an-acre ranch houses, we’re screwed.

    Subsidizing homeownerhip is pretty regressive, since it helps middle and upper income people the most, but if we’re going to do it (it is a really popular subsidy), we should at least only subsidize the homes that contribute to a balanced transportation system.

  • Your walk score must be at least this tall (wave hands above head) to use this subsidy.

  • The tax deduction for homeowners only equalizes the situation with investors. Investors can deduct interest for investment or business purposes, such as landlord collecting income from a person. Even in Canada, it is perfectly legal for the rich to take out a mortgage as long as investment income is being generated (a debt swap) – http://www.bloomberg.com/apps/news?pid=20601082&sid=aE0JcsZoqUdE&refer=canada – which basically leaves a mortgage interest deduction for the rich and screws the middle class.

    The first time homebuyer’s credit distorted the market, but at least did the part of stabilizing the freefalling housing market – we’ll see if it continues past June. Living in owner-occupied multi-family housing would be more acceptable if we had greater transparency on HOAs, owner occupancy rates, etc. – I looked at several condos when I bought and could never get a good answer on whether the HOA was in good financial shape. I have a friend who is the treasurer of her HOA and basically ended up being the bad guy because the past administration was spending down their reserve, and she had to double the HOA dues. Ultimately too much is at the mercy of other people when you share walls, which is why I ended up buying a single family house on a 7,000 square foot lot. If I choose to have roommates, that will pay for my mortgage payment.

  • DJB

    @ Calwatch

    You raise some interesting issues regarding HOAs and the challenges of fostering condo-style homeownership. From what I’ve read, many HOAs contract out to professional management firms that run things fairly competently. But I admit I have no personal experience to speak from.

    I grew up in a house on a 6,600 square foot lot. I’ve seen attractive looking examples of detached houses on smaller lots. They generally have two stories with an integrated garage and small yards. For the record I think a “small-lot” house would sit on about a tenth of an acre or less (about 4,000-4,500 square feet).

    I wish there were more of that on the market. Denser suburbia would definitely help with walkability and transit service frequency.

  • You have that denser suburbia, but they are in the wrong locations. You might be surprised to know that the average lot size in California is traditionally smaller than the average suburban lot size in some of the other major metros, and much smaller than the Southern metropolises like Atlanta and Miami. Many of the ticky-tack subdivisions in the Inland Empire are 5-6,000 square foot lots. The “Preserve” in Chino, where you have to drive three miles to get a gallon of milk, has dense development, and many of the developments in real estate booms are PUDs (Planned Unit Developments) that jam a couple of dozen houses in 3-4,000 square foot lots that face a private street, with maybe one or two of the spaces planted with grass as a common area.

    The issue is that the denser development is scattered and mixed in with larger lots, and the PUDs and such are piecemeal and not part of a greater whole that encourages non-automobile modes of transportation. Rather, you’re packing people closer, but they still have to drive to work or get food, so all that density does is increase congestion. There are tons of apartments in Aliso Viejo and Laguna Hills, but the roads are four lanes in each direction and packed as ever.

  • DJB

    Fair enough. Without mixing land uses, density won’t help. I saw some small lot homes in Cerritos, right by the Cerritos mall, and in East LA mixed in with shops and such. That’s more of what I have in mind than sticking them out in the middle of nowhere.

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