Congress Set to Double the Size of Sprawl-Centric Home Buyer’s Tax Credit

sprawl.jpgPhoto: US Department of Agriculture

The $8,000 tax credit for new home buyers — which was wracked by fraudulent claims after its creation as part of the nation’s economic recovery effort — is on the verge of a significant expansion by Congress.

Just how much will the tax credit mushroom thanks to the deal reached in the Senate? As the New York Times explains, it’s time to take the "new" off of the credit’s name:

The homebuyers’ credit … would be extended to cover homes
under contract by April 30. Also, it no longer would be limited to
first-time buyers; people who have owned a home for at least five years
could get a $6,500 credit on a new residence. Income limits for
eligibility would be raised, making many more people qualify.

Extending and expanding the credit would cost an estimated $11 billion, on top of the $10 billion spent so far.

As Ryan pointed out earlier this week, the higher rate of home ownership in suburbs tilts the credit’s benefits notably away from urban areas. But that’s nothing new for the federal government, which has lavished subsidies on home buyers while paying much scanter attention to improving rental affordability.

In the fiscal year that ended October 1, Washington’s support for home ownership totaled $230 billion, while parallel support for home renters was $60 billion, the non-partisan Congressional Budget Office (CBO) reported yesterday. That nearly four-fold gap is visible in the below chart:

housing1.pngImage: CBO

Even as federal lawmakers keep promoting home ownership as the "American dream," rental rates rose to one-third of the country in 2008, in part due to low-income and minority residents who were forced into default on risky mortgages. For many of those residents, as well as city dwellers in general, rentals tend to be the only housing option that offers access to affordable transportation — but help from Washington has been perilously slow in coming.

And it may not come for a while yet. Legislation updating the Section 8 voucher program for rental housing was approved over the summer by the House Financial Services Committee but has yet to see floor time in the full chamber, let alone the Senate.

Meanwhile, the larger home buyers’ credit is currently attached to a long-sought
extension of unemployment benefits, making its approval a political fait accompli (though one much-delayed by partisan bickering).

  • Glenn

    What are the new income limits? That’s the other way the incentives discriminate against urban dwellers. Housing prices are so high that you need the higher incomes to afford to buy an apartment.

    The best way to run an incentive like this would be for giving folks lower interest rates, not a lump sum. With a lower interest rate folks would be encouraged to stay there longer and they would not have as much interest to write off. Maybe they could subsidize a point on the mortgage at closing?

  • Renters need economic justice. It should take two forms: Rental affordability, as Elana says. But also assistance to renters who have lost their jobs and have seen their unemployment benefits run out. Those who are in danger of eviction need immediate economic assistance if they’re not eligible for Section 8.

  • Tax Credit Update – Senate voted 9701 today shortly after noon to end debate on H.R. 3548 (The Unemployment Compensation Extension Act of 2009) which contains the amendment extending and expanding the tax credit….Next step is for the Senate to vote on passage of the bill with the amendment…this may happen tomorrow night or Friday…I have complete info in a post at

    http://www.realestateindustrynews.com/real-estate-market/home-buyer-tax-credit-extension-update/

  • Denkman

    I don’t usually comment, but it’s really important to note that the best part about putting people in homes that they own is increasing the take on property taxes (that renters just don’t pay). I know that we’re all pretty progressive here, but the additional amount of money local governments suck out of property taxes has to make up for the Federal input. This is just a fancy way of subsidizing local governments without just handing them money (which people would kvetch about as well).

  • Ian Turner

    Denkman,

    Renters pay property taxes just fine, thank you: Even if all residents are renting, somebody owns the property, and they pay the property taxes out of rents.

    –Ian

  • It’s interesting to see different takes on this legislation: Last night a segment on WNYC complained that the Home Buyer’s Tax Credit fails to distinguish between healthy communities and those hit by foreclosures. The commenter basically argued that the credit ought to be limited to places like Sprawlville, FL. I found myself shouting at the radio.

  • Yes, Vroomfondel, that segment of Marketplace was even more infuriating than Frank O’Donnell’s hyperventilation.

  • Tubulus

    The simple fact is that the government decided many years ago that high levels of home ownership was an important goal, leading to the situation we are in now where consumers have a massive leveraged bet on housing. I’ve been a renter both in a usual city apartment and now in a suburban house. I have no desire to use leverage in my personal investments, and this includes making a levered bet on housing. I don’t see why my choice of where to live should have anything to do with what bets I make with my personal money. I am extremely unhandy when it comes to home renovations and general upkeep – I clearly do not have a comparative advantage in personal property management, so I am happy to let someone else serve that function.

  • I can’t recall the study off-hand, but these homeownership subsidies generally don’t seem to even increase the rates of homeownership by that much. Most of the money goes toward allowing people who would be purchasing a home anyway to buy a bigger home.

  • When gasoline is $5/gal, these homes will be available again. This is just more autosprawl subsidy. It is time to stop worrying about bike lanes and start fighting for free public transit.

  • Homebuyer Tax Credit Update: The House of Representatives just passed the bill by a vote of 403 to 12. It is now headed to the President for his signature..he is expected to sign today or tomorrow which then puts the extension and expansion of the tax credit into law. I have complete details as well as links to the bill in a post at:

    http://www.realestateindustrynews.com/real-estate-market/home-buyer-tax-credit-extension-update/

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