David Reilly of the Wall Street Journal wrote an
about the large subsidies on housing as the government makes “financial regulatory reform.”
While previous articles have displayed benefits of these subsidies, such as with the federal homebuyer credit, Reilly questions the effectiveness of them. According to the Census Bureau, homeownership rose to its peak of 69% in 2006 and declined to 67.1%. Reilly also mentions that, according to EuroStat, homeownership in the European Union was about 75% in 2006, noticeably higher than in America, even when most countries in the Europe Union don’t offer housing breaks.
Critics have argued that subsidies “distorted housing prices and deprived the government of needed revenue.” For example, tax breaks on mortgage interests are expected to cost about $600 billion from 2009 to 2013 for the government.
Jeffrey M. Lacker
of the Federal Reserve Bank of Richmond also expressed his disapproval for mortgage subsidies in March. “Over time we should wean our economy off dependence on housing subsidies,” he said in a conference of the Institute of International Bankers.
He also pointed out how not as much attention was given to the housing credit issue in reform proposals, a taboo topic for politicians because of the popularity of such breaks. Nonetheless, he said, “Whatever society decides about the bias toward housing, real regulatory reform would be incomplete without addressing the fate of the government-sponsored housing finance enterprises.”
The issue of tax credits will soon sit on New Jersey Governor Christie’s desk, according to
Hugh R. Morley of The Record
. A bill that was passed by the Senate last Thursday and passed to the Assembly seeks to encourage more home purchases in the lackluster economy. However, it also plans to award credits of a total $100 million, contrary to Christie’s goal of cutting state spending.
Morley summarizes key parts of the bill: a taxpayer must sign a home purchase by one year of the bill’s enactment, buyers receive a credit of up to $15,000 or 5 percent of the purchase price, first-time home buyers must close the deal within 18 months while purchases who owned homes before have 12 months, 75% of the $100 million would go to new homes, and the buyers must occupy his or her purchase for at least three years.
Contrary to Mr. Lacker, proponents of the bill believe that the stimulus has enough benefits for it to benefit the economy. Morley reports that “every new home built creates three new jobs,” according to New Jersey Home Builders Association. State Senator Paul Sarlo, has also stated that “construction of a new home generates tax revenue of $42,000” and thus believes that the bill wouldn’t be a burden to New Jersey tax payers.
*Any information on all blog entries should not be construed as legal advice. If you have any legal issues, please consult an attorney.