If the real estate industry had not been so greedy in taking advantage of people selling and buying houses. I would say I agree.
How is that relevant? Maybe if they are in your opinion so greedy they should not get such a subsidy for their occupation, if so I agree, but the commissions have little to do with my opinion here.
The main reason not to provide such a subsidy is that it helps distort the housing market and keep it from settling at some real market price. Also it might not even help house buyers much, as it will tend to (temporarily) drive housing prices up a bit. Probably not so much as to harm the people who receive it (unless its putting them in a house they can't really afford), but you also have to consider the harm to house buyers who don't get it but still buy a house at the now higher price.
As for the $43,000 figure it comes from here -
"Extending the credit and expanding its scope is a bad idea on multiple levels. For starters, let's look at the program's return on investment. According to the IRS, 1.4 million homes have been bought since the credit's inception; the National Association of Realtors gives a somewhat higher figure of 1.8 million to 2 million. (Either way, the program is already going to cost about $15 billion if it winds down as planned, according to the Associated Press.) And yet, according to the NAR’s own math, the tax credit was the make-or-break factor in only 350,000 of those sales. The National Association of Homebuilders, another industry group lobbying to extend the credit, places this figure even lower, at 150,000. In other words, the vast majority of homebuyers would have signed on the dotted line even without the government’s incentive.
As any marketing professional knows, you don't measure a campaign's success by how much it costs but by how much it costs per person to persuade consumers to change their behavior. As the observant bloggers over at Calculated Risk have pointed out, when you divide the number of “conversions” (that is, people who bought a house only because of the tax credit) by the total amount spent on the program, the numbers look very different. Now, instead of the program costing $8,000 per buyer, it costs $43,000—not a great use of taxpayer dollars.
That's not the only problem. The credit also artificially inflates the value of all eligible homes sold by up to $8,000, leaving the buyer with a debt that's greater than the value of the property. Sound familiar? Inflated home values were a big part of what got us into this mess in the first place. Perpetuating this via the tax credit might lessen the pain in the near term, but as we've all learned the hard way, a correction's going to come sooner or later.
What's more, the credit creates skewed incentives. America’s tax code is already tilted heavily in favor of home ownership; if you own your house, you get to deduct the interest you pay on your mortgage as well as your property taxes. Plus, the more house you own, the more you can deduct. Some economists think this encourages buyers to stretch for a McMansion instead of purchasing a more modest abode; following this logic, dropping the income cap and first-time requirement on the tax credit would only increase that effect."
thebigmoney.com
and the writer originally got it from here -
"But if we actually look at the numbers, this is a poor choice for a second stimulus package. The NAR recently reported:
NAR estimates that about 1.8 to 2.0 million first-time buyers will take advantage of the $8,000 tax credit this year, with approximately 350,000 additional sales that would not have taken place without the credit.
You can calculate the new $15 billion projection; 1.9 million times $8,000.
But this only resulted in 350,000 additional sales. Divide $15 billion by 350 thousand, and the program cost is about $43,000 per additional buyer. Very expensive.
Now the National Association of Home Builders estimates that expanding and extending the credit through 2010 would generate 500,000 additional sales at a cost of about $30 billion. So this is approximately $60,000 per additional house sold. And I think the cost will be much higher.
REMEMBER: Many homes will be sold to buyers who would have bought anyway without the credit. These buyers will still receive the credit. This year almost 2 million home buyers will claim the tax credit, but only 350,000 were additional buyers. That means this was a poorly targeted tax credit since so many people receive it who would have bought anyway. Targeting is the problem with any tax credit."
calculatedriskblog.com |
