It was a busy day on Capitol Hill yesterday as the Senate, in addition to several amendments to the now-$900 billion economic stimulus package, approved a homebuyer tax credit for all new home buyers in 2009. The Isakson amendment, named for Georgia Republican Johnny Isakson, passed by voice vote with no opposition, allowing for $15,000 per homebuyer, at a cost of $18.5 billion over 10 years.
The New York Times reports that the amendment “was the second amendment in two days intended to encourage consumers to make major purchases. On Tuesday, the Senate approved a tax incentive for car buyers, sponsored by Senator Barbara A. Mikulski, Democrat of Maryland, that would allow the deduction of sales tax and loan interest on purchases made this year.”
But wasn’t “incentivizing” the homebuyer part of the problem in the first place? Further, won’t the tightened credit market continue to make it hard for people who need incentive to invest in property to access loans? The car buyer incentive was criticized for not focusing on fuel-efficient vehicles, leaving transportation advocates arguing that the money would have been better served for funding cash-starved mass transit.
But a real concern that continues to surface is that placing continued incentives on car buyers and homebuyers, who, in most cases, are looking for single-family, detached homes, will have adverse effects on development and sprawl development, as well as an unintended, long-term negative impact on the housing market.
Ryan Avent on Matt Yglesias’ blog sites a recent article by economist Ed Glaeser in the New Republic in saying that we should be “skeptical” of homebuyer subsidies:
Such subsidies are regressive. They encourage heavy, leveraged investments in undiversified assets that perform unexceptionally over time. They reduce mobility, which prevents households from responding to changing economic conditions. And should there be a massive housing bubble and collapse, they put millions of households at risk of foreclosure and bankruptcy, and contribute to global economic meltdown. But for all this, the odds of a reversal of these policies, like the mortgage interest reduction, are basically zero. Which is yet another reason that we ought to focus on undoing other suburban subsidies wherever its politically feasible. Congestion pricing, which could address crowded freeways while funding better urban transport, is a good place to start.
Indeed. It will be interesting to watch this stimulus bill evolve. Will there be actual compromise between Democrats and Republicans, or will the original bill’s intent just end up being compromised? We’ll find out.