$200 million more to California’s new home tax credit?
May 24th, 2009 Categories: Real Estate News, San Diego County Community News, San Diego county Real Estate News
SAN DIEGO– Our state, THE GOLDEN STATE is going broke people. With the defeat of all but one proposition at the special elections, 9 billion dollars has been added to our predicted budget deficit. The new total for this year is in excess on $21 billion dollars and I think is is safe to say rosy economic news isn’t around the corner.
Seemingly unconcerned with this fact, there has been a bill introduced in the state legislator that will increase the state’s new homes tax credit from $100 million to $300 million.
Currently the state is offering a tax credit of $10,000 paid over three years to anyone who purchases an existing new home or one scheduled to be built until the approved $100 million fund runs out. The program has been more successful than first thought and while legislators thought this money could potentially last until the summer of 2010, it looks as though the fund will run out of money in the next several months. Thus, the proposal to add the $200 million. As of May 20 there have been 6816 applications granted totaling in excess of $65 million in less than 3 months.
Now I understand that the construction and building industries have a wide reaching impact on our state’s economy. There are jobs, property taxes, permit and building fees, suppliers of goods, sales staff and more.
“This is critically important at this point in time in our economy,” said Assemblywoman Anna Caballero, D-Salinas, one of the bill sponsors.
She said for every new home built, there’s a $16,000 benefit in fees and property taxes for the state and a $3,000 benefit for local government. On top of that, three new jobs are created with each new home, said Assemblyman Jose Solorio, D-Anaheim, also a bill co-sponsor. -Ventura County Star, May 14, 2009*
However, on an issue that would outwardly seem to benefit me as a REALTOR, I believe this is a very poor use of state funds at this time. Firstly, this seems to be a huge concession to an outstanding lobbying effort. Secondly, I can not trust that there is not a bigger better benefit to the whole with this $200 million and thirdly, singling out one industry as a benefactor of “free money” that we do not have is wrong.
However, if the state really believes putting money to use in the housing industry will have a greater economic impact, I like the tact taken by executive director of the California Economic Forecast Mark Schniepp. Mr. Schniepp opinion is that a better use of the money would be to put it to use in the resale home market and this makes a ton of sense to me. There will be job creation due to rehab and renovation and property taxes of foreclosed homes will start being paid again. Locally, neighborhoods come back to life and revenue will start flowing again in to the local retailers and service businesses.
“Once they get the existing home market going, it would automatically get the new home market going,” he said. To do otherwise — to bypass stimulating existing home sales — goes against the grain of how the housing cycle works, he said.
“It’s short-sighted to limit it to the new home market,” he said.
Schniepp challenges the argument that new home sales create more bang for the buck economically, since buyers of existing homes spend on renovations, new furniture, appliances and other things.*
Another factor that I can not agree with is that this credit can be used on yet to be built homes. If applied strictly to existing inventory I would understand that better, but to apply it towards a home coming in the future is irresponsible and here is why.
Some criticize it for adding to the state’s excess housing supply, even as foreclosures continue to pile onto the market. In April, California posted the nation’s third-highest foreclosure rate, up 42 percent from a year ago, according to RealtyTrac.
“I just view the bill as a short-term solution that creates more of a long-term problem where you’re adding excess houses without any job growth,” said FBN Securities analyst Joel Locker. “Why would you compound the problem just to put a couple of people back to work?” -Reuters, May 13, 2009
Remember these new homes being torn down in Victorville?
[...] Governor Arnold Schwarzenegger proposed and has sent to the state legislature a new round of state first time buyer tax credit. The tax credit as proposed would be for new or existing construction and would be paid out as a [...]
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