Tuesday, October 27, 2009

California BIA makes a silly argument for extending tax credit.

I am generally sympathetic to many of the building industry's political causes (e.g. lower impact fees and regulation), but their push to renew the new homebuyer tax credit is just silly. Even if it did stimulate new home purchases, I think this tax credit is bad policy. However, the construction industry's own data don't even show that it stimulates new home purchases. That won't stop them from claiming that it does to argue for another $100 million government handout. Here is the new press release announcing the latest data from CIRB.

They find new home permits dropped a whopping 1% between August and September. If you look at their report, you will see that seasonally-adjusted permits actually increased (in other words it is normal for permits to drop a little between August and September).

Since the discontinuation of the popular homebuyer tax credit, we have seen a significant drop in traffic these past few months which continues to drag down new-home construction, and in turn, job creation,” said Liz Snow, CBIA’s President and CEO.

The tax credit program only lasted for four months due to its growing popularity, but we saw a significant increase in traffic during that time, which led to an increase in job-generating new-home construction,” said Snow. “Extending the program would help continue that positive momentum and would help reinvigorate the overall economy.”

This report also notes that they have revised down their new home permit forecast to 37,700 for 2009. Before this new home tax credit was passed in February (it was in place March through June), CIRB was forecasting well over 50,000 permits for 2009. For every month of 2009, permits have been in the 30,000 annual pace range, and there is no difference for the months the tax credit has been in place. I don't see how you can spin this data as showing the tax credit was successful. The new home buyer tax credit was a pure handout, although it lasted longer than originally expected because home sales were so low.

I should also note that new home construction has been one of our most accurate forecasts for the year. We have been forecasting 32-36,000 since the beginning of the year, whereas most forecasters (including CIRB and UCLA) were predicting permits/starts between 50k and 70k.

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