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For years, taxpayers have provided significant, direct, regressive transfer payments to real estate investors. The two primary forms of this have been the home mortgage interest deduction and special rules that apply to capital gains on a primary residence. These policies are large in size, so there is legitimate debate about whether it is good policy or not to redistribute wealth in such a manner. But one of the key aspects of these kinds of subsidies is that they are more or less permanent and predictable. They alter the relative value of real estate compared to other kinds of assets, but they don't create additional volatility or cost beyond this initial reallocation.

However, over the past few years, we have engaged in policies that don't just redistribute society's wealth. They create and exacerbate volatility that then leads to additional social costs beyond the immediate transfer payments. In particular, I am talking about artificially low interest rates, lax regulation and enforcement of laws (especially fraud), and temporary home buying tax credits, first as a $7,500 0% loan and more recently as an $8,000 handout. It's that last item I want to address this evening.

A couple weeks ago I explored conceptually how to approach the "first time homebuyer tax credit" from a political perspective, how the economics interacts with the policy application. While it is largely objective, you can likely read into my tone a general distaste for these kinds of redistributive policies. Here, I'm going to editorialize for a moment on this and then offer some approaches for what we can do about it. For the results-oriented gals and guys out there, or just those of you short on time, feel free to skip down to the last bolded header for specific suggestions.

#

Why is "First Time Homebuyer Tax Credit" in quotes? (if language isn't your thing, just skip to the next bold item...)

#

Our ability to communicate is dependent upon the language we have at our disposal, and politicians and financiers are exquisitely adept masters at understanding and employing this state of affairs for their benefit. The fascination with this program begins with the name itself. It is not simply for first time investors, the primary beneficiaries are not homebuyers, and it has nothing to do with the tax code.

Wait, what?

In reality, the first time homebuyer tax credit is simply a phrase that's deployed to express a much larger and more complex program while making it sound like there's a specific, coherent principle supporting the effort. Eligibility is not based on whether one has bought a home before or not. Rather, eligibility is determined by whether one has recently owned a home or not. Now, this rhetorical trick isn't anything new. Just ask a friend, if you don't know, what a born again virgin is. The difference is semantics; very important semantics. Then, there's the little matter that homebuyers are one of the lesser beneficiaries of the policy. The bulk of the subsidy goes to the real estate industry itself, the Realtors(R), mortgage brokers, etc. Then, a significant chunk goes to the sellers. After all, the whole point of the policy is to stabilize the sales prices and number of sales. The people who benefit from this primarily are those who

  1. Are in the real estate business
  1. Own real estate and want to sell

Don't get me wrong, tax credit-eligible buyers get some benefit, depending upon their relative negotiating prowess in the particular transaction in question, but the reason for using homebuyer, instead of homeseller, [or Realtor(R)] is because, well, it sounds better, not because it has any explanatory value of the actual effects of the policy. In our private property, double-entry bookkeeping way of viewing the world, by definition, a transaction involves a buyer and a seller. There's no way to help sellers without hurting buyers (unless, of course, somebody else picks up the tab).

Which gets us to the third part of the phrase, tax credit. This has nothing to do with the tax code. Rather, it simply recognizes that the IRS is an extremely efficient, customer-oriented bureaucracy. Yes, you read that right. In fact, I'm going to let you read that sentence again to make sure it sank in [insert Jeopardy music here]. Rather than altering the tax code, the $8,000 tax credit simply employs the IRS' rather useful expertise to transfer $8,000 to eligible homebuyers. Calling it a tax credit is like calling a Halliburton contract a tax credit; it doesn't make sense because there's no relation between taxation (receipts) and spending (outlays). Now, that's not a bad thing per se, it's just valuable to see through the linguistic nuances. Nonrefundable tax credits are far superior to tax deductions. This is precisely because a nonrefundable tax credit has nothing to do with one's tax liability, one of the core drivers of the regressive nature of tax deductions generally. Wealthier people who buy bigger houses get more money (via policies like the home mortgage interest deduction and capital gains exemptions) than poorer people who buy smaller houses, even though they're both engaged in the same supposedly beneficial act, buying a house. That's only a good policy if you like McMansion sprawl and wealth concentration. Think about this the next time you read a story about the first time homebuyer tax credit, or housing industry subsidies more generally.

##

So you don't like housing subsidies? (if you just want to cut to the chase, skip to the next bold item...)

##

To be precise, what I do not like are regressive policies that misallocate resources within the housing industry and between housing and other asset classes. The opportunity cost, the social value of what is lost by favoring one asset class over another, is almost by definition greater than the private gain enjoyed by the beneficiaries of the policy. Affordable housing overall is a great public policy goal; home ownership specifically, though, is only valuable to the owners and people in the business of selling real estate. Conceptually, socialized losses and privatized gains works no better for individual home owners than big financial firms.

We all might have some altruistic (ie, human) sense of wanting to target specific goals, like trying to help a homeowner who is struggling, or trying to incentivize a renter who wouldn't otherwise buy a house to do so. The problem is how to do that. Calculated Risks' ongoing exploration of the policy has resulted in an ever-higher numerical estimate of the marginal cost of inducing one person to buy who would not otherwise have done so.

That cost for potential new extensions of the program is now exceeding $100,000 per additional home sold. I point that out mainly as an excuse to shemelessly reference my not-so-serious exploration of handing out gobs of money. I thought at the time $100,000 was a number so absurdly large and conveniently round that it would seem ludicrous, proving that no matter how much we may follow an issue, we have to be prepared to change our minds based on new evidence. Such is the cost of inhabiting the reality-based world.

The NAHB has also been arguing to expand the tax credit from $8,000 to $15,000. But using $8,000 per home buyer - and estimating 5 million home sales over the next year - the total cost of the tax credit would be $40 billion.

According to the NAHB this would result in 383,000 additional home sales. Dividing $40 billion by 383 thousand gives $104,400 per additional home sold!

One thing I will say in defense of the housing tax credits (both the previous $7,500 loan and the current $8,000 handout) is that they're done pretty well compared to other kinds of handouts because they get the money to their target, the real estate industry, rather effectively. The CARS (cash for clunkers) program provides an illuminating comparison, as it added several absurd restrictions that made the program much worse than the basic concept of transferring taxpayer dollars to private industry. Specifically, it

  1. required clunker owners to buy another vehicle.
  1. required that vehicle to be brand new.
  1. required destruction of the old vehicle.
  1. put into place very minor MPG requirements for the new vehicle.
  1. created a lot of paperwork, inventory, and cash flow issues for dealers involved in the program.
  1. created massive volatility from Q1 to Q2 to Q3 2009 due to the extremely short-term nature of the program.

This created such a hodge-podge of countering incentives that it really was just a massively ineffecient handout. It was neither good economic policy nor good manufacturing policy nor good environmental policy. It exacerbated volatility rather than smoothing it out, it ingrained low mileage vehicles rather than seeking new alternatives, and it transferred dollars that could have been spent elsewhere, on things like renewable energy and rail transportation.

And that observation gets to the heart of this particular post. If we're going to implement policies like this, let's at least make sure the details don't make things worse. In an ideal world, government wouldn't be picking winners and losers; that's what private property is all about. You might make money, you might lose money. But if government is going to get in that business, if we simply can't stop that politically, then there is also value in advocating for sensible guidelines for crafting these policies.

###

How can we improve the housing tax credit program?

###

The meat of the issue, with all apologies to herbivorous friends, is determining the desired outcome. It's critical that we define goals very clearly, because the lobbyists driving the legislation have their own goals, separate from what benefits either homeowners or society at large. Our goal should be increasing net demand for housing, not increasing the number of transactions.

The framework that has been laid out is pretty straightforward. Senator Isakson, in that regard, is doing us a good public service by being much more frank on this than advocates of the much larger and more secretive corporate bailouts of the past couple years.

Specifically, my legislation would increase the maximum amount of the credit from $8,000 to $15,000 and expand the current tax credit so that it applies to any buyer of any home, not just first-time buyers. My legislation also would eliminate the income caps of $75,000 for an individual and $150,000 for a couple under the current tax credit so that there is no income limit for eligibility. Finally, the legislation would extend the tax credit for one year from date of enactment and would still allow homebuyers to claim the credit on their 2009 tax return for purchases made in 2010.

Isakson even names the lobbyists.

My legislation has been endorsed by the U.S. Chamber of Commerce, National Association of Realtors, Business Roundtable Housing Working Group and Mortgage Bankers Association.

And he shows why it's not enough simply to say no to silly policies like this, no matter how silly they may be. They get through Congress, so we might as well try to make them better.

I am pleased the Senate has twice passed my proposal overwhelmingly, and I will continue to push this tax credit until it is signed into law.

So here we go. IF we continue the housing tax credits in their basic form, enough to be wasteful but not enough to do anything really bold and visionary, then these guidelines should either remain in place or be added:

  1. Don't eliminate the income limits for buyers.

This is one of the best features of the tax credit. High end luxury buyers are least influenced by a relatively small amount of money, and those areas are least in need of investment. Yes, I know. There are some very exclusive properties in places like DC, NY, LA, SF, HI, and so forth. The people buying those properties are doing just fine. There isn't that much of a relationship between median home prices and median incomes across broad geographic regions, while the greatest disparities in both real estate and wages occur not between the coasts and flyover country, but rather, within metropolitan areas. The simple fact is that if your household brings in more than $150,000 a year, you are one of the highest income households in your city, whether that city is San Francisco, CA or Des Moines, IA. To say that slightly differently, a 2,000 square foot house costs more in San Francisco not because of wage disparities but rather because land in the Bay Area is largely inelastic. The bay, the ocean, and the hills create natural barriers to sprawl that don't exist in, say, West Des Moines.

[I'll put my money where my mouth is on this, by the way. I'll bet a nice steak dinner (er, uh, chickenless chicken patty) that I could generate a list of median incomes and percent of households that make more than $100,000 by zip codes and you couldn't tell whether the data for those zip codes are in an 'expensive' city or cheaper one.]

  1. Target household formation.

Home owners selling to each other are a wash in the big picture; the only way to 'stabilize' demand is to increase the net number of home buyers, in other words, to make more households. To do this, I suggest creating a two-tiered system. The first tier would be a 'first time homebuyer' criteria. I would bump this to $10,000, and make it applicable specifically to first time buyers; no repeats who have previously owned. The second tier would be a 'first time household' credit, and it would be twice as large, $20,000. To be eligible for this, you would have to show that for some period of time (2 years, for example) you have shared a living arrangement with someone with whom you did not have a dependent relationship (for example, an adult child living with parents, roommates sharing a place, sisters who moved in together, etc). Having renters simply move down the street and buy doesn't do anything other than drive real estate commissions. But, splitting up households increases the total demand for the housing stock.

  1. Deal with the volatility created by temporary time frames.

While the homebuyer tax credits, which have stretched essentially over 12 month periods, are much better than the cash for clunkers, which was essentially measured in weeks, the temporary nature of the program still is problematic, both in a sense of efficiency and a sense of fairness. Therefore, the other purpose of the two-tiered system is to create another time frame: permanence. The second tier will be temporary, another year extension like that being advocated by the real estate industry, and in exchange for a more targeted pool, notice I'm willing to advocate an even higher amount for the tax credit.

But here's the real kicker. In order to smooth out the fluctuations, the short term volatility of guessing what politicians will do in the future, let's just make the first tier, the $10,000 credit, permanent. That allows people to calculate when it's most effective for them to take the credit, rather than trying to beat artificial timetables in legislation. Making it permanent also is a credible way to signal that that's it. There's not going to be a bigger round of handouts next year. This is the policy today, tomorrow, next month, next year, next decade. When Tier 2 expires at the end of 2010, the replacement is already there, transitioned into the system this year with this legislation.

  1. Don't add extraneous components.

Killing two birds with one stone is always great when it works. But sometimes, this results in confusing the incentives and rendering the results worse than separate, dedicated efforts. Cash for clunkers is the recent prime example of this. Let's keep the housing tax credit as a simple, straightforward, narrow program. If we desire other outcomes, put that in different legislation.

  1. Implement a five year vesting cycle.

Part of stabilizing neighborhoods is stabilizing them. To that end, the final point I would highlight is making the nonrefundable nature of the credit dependent upon staying in the home as a primary residence for a minimum of five years. Each year, 20% of the credit would be earned. If someone who received the $20,000 credit wanted to move after only three years, they would be allowed to move. But they would owe the first $8,000 from the sale of the property (40% of $20,000) back to the government.

####

Is this doable?

####

I think so. I think it transfers enough money to the real estate industry that they'd take it over the risk of not getting anything renewed.

But here I have to confess a lot of uncertainty. I don't know important people. When I leave voice messages with politicians as a citizen, I don't get return phone calls. When I send written correspondence, I get a form letter back. If I'm lucky.

But I also stubbornly, perhaps naively, believe that if enough people ask similar questions, make similar observations, we do make a difference. What I'm proposing is partly a bandaid, partly wasteful, partly more of the same limited view of thinking. But I think it's a good enough compromise it could get somewhere. I believe strongly that it is certainly an improvement over the current framework Senator Isakson, the NAR, the NAHB, the MBA, etc have advocated, but that this is also friendly enough to them to be politically palatable.

I would be excited to hear suggested edits or perhaps responses you get from political staff.

Originally posted to washunate on Tue Oct 13, 2009 at 08:00 PM PDT.

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Comment Preferences

  •  mmm, compromising pie never tasted so good (3+ / 0-)
    Recommended by:
    Marie, wa ma, ppl can fly
  •  Would prefer that we rethink this (1+ / 0-)
    Recommended by:
    washunate

    whole subsidy thing to enrich the private wealth of certain individuals/groups/industries.  Public education, parks, and libraries how we should be thinking.  When most industrialized countries spend less in government funds for UHC than the US does to subsidize private healthcare for a fraction of the population, we should rethink public health.  And public housing.

    "Dulled conscience, irresponsibility, and ruthless self-interest already reappear. Such symptoms of prosperity may become portents of disaster!" FDR - 1937

    by Marie on Tue Oct 13, 2009 at 08:12:31 PM PDT

  •  I do not get this ... (1+ / 0-)
    Recommended by:
    OtterQueen

    For years, taxpayers have provided significant, direct, regressive transfer payments to real estate investors. The two primary forms of this have been the home mortgage interest deduction and special rules that apply to capital gains on a primary residence. These policies are large in size, so there is legitimate debate about whether it is good policy or not to redistribute wealth in such a manner.

    If I correctly understand this, you are stating that NOT taxing someone's wealth equates to a direct transfer payment? And that allowing a class of individuals (homeowners) to retain more of their private wealth equals redistribution of wealth?

    •  Allowing homeowners to pay less taxes (3+ / 0-)
      Recommended by:
      debedb, ppl can fly, washunate

      than others redistributes wealth.  And further the most wealth is redistributed to the homeowners that borrow the most money and own the biggest houses.

      •  That would make sense (1+ / 0-)
        Recommended by:
        OtterQueen

        if wealth belonged to the state and was not privately owned. As it is, wealth is private property. Not taking someone's wealth does not constitute redistribution.

        •  Wrong. (2+ / 0-)
          Recommended by:
          debedb, washunate

          Everyone's wealth is taken in taxes.  When someone gets a deduction less is taken from one guy so more is taken from another so wealth is redistributed.

          •  Redistribution (1+ / 0-)
            Recommended by:
            OtterQueen

            is taking from one source and giving to another. That is pretty elementary. A person who retains their own personal property has not received that personal property from another source. It was their property, they kept it. Also pretty elementary.

            By your logic, every single dollar a person earns that is not taxed, has been redistributed to them. Following on to the logical conclusion, nothing is earned, nothing is owned. Everything is redistributed.

            •  What are you talking about? (1+ / 0-)
              Recommended by:
              washunate

              Are you trying to suggest that taxes do not redistribute wealth?

            •  Are you familiar with schedules to form 1040? (0+ / 0-)

              They modify, ie, reallocate, how wealth is distributed.

              Wages are treated differently than qualified dividends which are treated differently than interest which is treated differently than stock capital gains which is treated differently than capital gains from sale of a primary residence, etc.

              Policies that affect the size of your tax liability or refund are policies that affect how society's resources are allocated, I would argue.

              Schedule A, Schedule B, Schedule D, etc.

              Plus, there's the other kinds of exemptions, like 401(k)s and IRAs and charitable contributions. The nature of deductions, credits, and so forth have distributional consequences.

        •  false (0+ / 0-)

          That would make sense if wealth belonged to the state and was not privately owned. As it is, wealth is private property.

          Look up "Right of Conquest"/

    •  yes (0+ / 0-)

      I understand what you're saying.

      I think, however, that in order to tax the rich, to have a progressive system of raising revenue, we have to treat regressive taxation as a redistribution of wealth.

      I would argue quite strongly that the tax cuts in 2001 and 2003 were a redistribution of wealth, for example.

      This is just an opinion, of course. But I think the framing matters.

  •  SIgh ... (0+ / 0-)

    actually, restrictions make sense. Actually, with all its problems, CARS program worked far better than you suggest.

    In any event, we should not simply be subsidizing home buying because, unlike CARS, it is undifferentiated assistance to consumption.  Instead, such funding should be linked to (for example) home energy efficiency, to boost the market power of energy efficient homes & help reduce the pollution footprint of our homes.

    •  this is precisely where I dissent (0+ / 0-)

      This is what makes me much less 'liberal' than the average Daily Kos user. CARS I think is a pretty useful litmus test for that.

      Actually, with all its problems, CARS program worked far better than you suggest.

      The CARS program paid people to take on debt to buy things most would have bought anyway that oh, by the way, still emit lots of pollution.

      What was the goal? To help domestic auto makers? Foreign ones? Car owners? Car buyers? Car dealerships? Reduce GHG emissions? Reduce air pollution? Shift consumption from Q4 2009 to Q3 2009? This, from my perspective, is the problem of trying to cram so many different goals into one program. None of the goals get met effeciently.

      Instead, such funding should be linked to (for example) home energy efficiency, to boost the market power of energy efficient homes & help reduce the pollution footprint of our homes.

      That is precisely what I do not want to see happen.

      Thanks for the feedback. I think this is illustrates very clearly the various opinions on this.

      •  You Precisely Don't Want to See Energy Efficiency (1+ / 0-)
        Recommended by:
        OtterQueen

        happen?

        It's going to happen ugly later, if it doesn't happen less ugly now.

        It's actually possible to accomplish 2 goals in one program.

        Like for example, developing a dependable post nuclear war communication system and revolutionizing the entire everyday world.

        We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

        by Gooserock on Tue Oct 13, 2009 at 09:07:43 PM PDT

        [ Parent ]

        •  so you're suggesting government confiscate homes? (0+ / 0-)

          You Precisely Don't Want to See Energy Efficiency happen?

          I don't want policies designed to increase home prices try to also implement energy goals or environmental goals. If you value installing solar panels, or doubling insulation, or replacing windows, or whatever, subsidize that separately. Give a homeowner money for doing something. Or even better, hire unemployed people CCC-style to go do the work, as decided by government rather than private property owners.

          Like for example, developing a dependable post nuclear war communication system and revolutionizing the entire everyday world.

          DARPA is a highly secretive subsidiary of a highly secretive part of our federal government.

          Are you advocating federal government ownership, control, and direction of the housing stock? I personally am not that opposed to such a radical policy. I like boldness, and that's worth considering. The government owns courthouses and schools. Why not housing?

          However, so long as we have a private real estate market, one driven by investors looking to profit from the sale of their homes, this notion of comparing to a government-directed program I just don't follow.

  •  Did you ever have a conversation (0+ / 0-)

    with someone that you thought you knew really well, and all of a sudden, it seems to you as though they are pulling their comments from some completely different planet?  And you think to yourself, "Wow..I thought we were on the same wavelength, or at least the same planet."  And you never quite look at that person the same way again.

    That's what this diary is doing to me.  Not that I know the diarist.

    The diary keeps talking about "Real Estate Investors" and  talking about the "Real Estate Industry".  These things do actually exist, but in my universe, they have very little to do with a person buying a house and living in it.  I don't consider a homeowner to be a real estate investor in any real sense of the term, and even most of the other people involved in these transactions are, in my experience, small fish.  Becoming a realtor is what the ambitious hometown people tend to do if they don't want to work in retail.  The appraisers and inspectors are often your neighbor's cousins and tend to not be able to keep their drawers hiked up to hide the butt crack.  Even the lawyer is usually some local guy with a 4-person office.  Of course there is some corporate mortgage guy involved who really IS part of the "Real Estate Industry", and that's unfortunate, but there's not much way around it.

    This diatribe would gain a lot more support from me if it was against the real Real Estate Investors and Industry.  These are the big fish that buy up everything, have no emotional stake or history with a piece of land, and care nothing for how it's used, how it's maintained, except that they can squeeze every last dollar from it.  

    Another comment to me that seems like it just flew in from Jupiter is this -  

    And that observation gets to the heart of this particular post. If we're going to implement policies like this, let's at least make sure the details don't make things worse. In an ideal world, government wouldn't be picking winners and losers; that's what private property is all about. You might make money, you might lose money. But if government is going to get in that business, if we simply can't stop that politically, then there is also value in advocating for sensible guidelines for crafting these policies

    IF the government is going to get in that business?  Picking winning and losing investors?  Here's your "losing investor" that the government is going to now jump into the game to help:

    Some poor schmoe works 20 years for GE, or Ford, or IBM.  He buys a house and raises a family in it, and he's doing all the right things (or at least all the things society wants him to do...planning for the future, saving for his retirement, and sending his kids to school).  

    Gov't intervention alert!  Winners and losers picked here -    The feds decide that his company is now allowed to issue our poor schmoe a retroactive pay cut in the form of tossing his pension in the trash. The hot new thing is 401ks and the government decides that large corporations and wall st. will be the winners of this round.

    So our schmoe loses that round, but he will struggle on.  He's lost 50% of the value of his pension, but he's got this brand new 401k thing, which in the 10 years he has left won't garner much, but he also has his house, which he has been paying for and paying taxes on, and can be sold when he retires to help make up some of the difference.

    Gov't intervention alert!  Winners and losers picked here -  Now the federal government takes actions to allow wall st. to play fast and loose with our schmoe's pitiful 401k investment, and worse, the 20 years of investment in his house.  His 401k is now a 201k, and his house is surrounded by derelict and empty buildings, and he's not got a snowball's chance in hell of getting anything out of it, or even selling it all, getting the hell out, and moving in with his kids, which is about all he can do at this point.

    So now the government wants to do something about this situation by handing out incentives for people to buy houses to live in, and the diary presents this as "the government getting into the business of picking winners and losers", and enriching the private wealth of the real estate industry.  This is a 180 degree twist to my perception that the government has historically been picking winners and supporting real Real Estate industry -  big mortgage companies, big employers, and the real investment class.  For the FIRST time in this mess, a program comes out which actually supports working Americans.

    This is not to say that I disagree with everything in this diary.  I particularly like the ideas about the 5 year vesting cycle and stabilizing neighborhoods.  I also like the basic premise that you should set the program goals carefully and tailor the program to actually meet the goals.  

    It's the basic ideas about who, exactly this is designed to help, who gets called "investors" and "industries" in this scenario, and especially, the notion that the government walks into a situation where there is an existing free-enterprise-level-playing-field, and plays Santa Claus to "investors and industries".  That's a total disconnect from the view at ground level of what's happening among working homeowners in large parts of the country, and it disregards all the government intervention that has put them into the situations they are in today.

    •  have you read my profile? (1+ / 0-)
      Recommended by:
      wa ma

      completely different planet

      I went to business school. What were you expecting?

      I value private property. I value not wasting taxpayer dollars. I value not mixing privatized gains with socialized losses. Every person who bought real estate in the past decade expected to make a profit. That's not the only reason they bought. It's one reason they bought. Homeowners are on average wealthier, not poorer, than renters. For people who have owned their home over the long term, they've made money, even counting the 'housing crash', because the crash was relative to an insanely huge bubble (something like $8 trillion, give or take, in artificial wealth). Owning a house is just like owning a stock or a bond or precious metals or anything else. They're worth what somebody else is willing and able to pay for them. Subsidies to asset owners transfer society's wealth into private hands.

      I'd be happy to go through this in detail if you're interested in an exchange of ideas.

      working homeowners

      That phrase captures the problem quite clearly. It is not homeowners we need to help. It is workers we need to help. Wages are at the heart of our financial mess. Look at the areas where real estate first hit hardest; they're precisely the areas where wages were first heavily depressed (think Flint, MI or Cleveland, OH).

      You're concerned about jobs and pensions. I completely agree. That's where federal dollars should go, ensuring economic opportunity and strengthening social insurance programs.

      The key takeaway is that handouts to asset owners take money away from those efforts.

      •  I think you can help both (0+ / 0-)

        I think for the working class, owning a home is a good idea.  People need somewhere to live.  Buying a home is perhaps the one thing that people can spend money on that will provide them with some security and stability, unlike other big purchases which depreciate and turn into junk over time.  In your mind this makes this an asset, which is true, but to me that's a secondary characteristic, with the primary being shelter, and, if ownership is actually achieved, the one point of stability for people who are pretty much at the mercy of the big fish in the pond.

        Who would you like to own all the necessary living spaces?  Landlords?  To my mind this creates an ownership class to which working people could never aspire.  

        There is a situation in Japan now, which I keep equating to our health care situation, where employers are in charge of providing housing.  When the economic slump hit, rather than finding themselves without healthcare, these people found themselves homeless.  Not saying you're recommending this, but it's one example of what happens to people who are not in charge of their own basic needs.

        Your arguments against homeowners in general don't sit well with me.  They smack of a Republican characteristic of blaming the other small fish in the pond, while the big fish eat everything up.  I think worrying about "asset owners" makes sense when you go after those who make their money (I won't say earn a living, because they don't earn it), from money.  That's the "asset and investment class", and I have no problem with fighting government efforts to fund them.  There is a huge distinction between those people and people who work for a living and try to set something aside to responsibly take care of themselves.

        I have a 401k.  I suppose this makes me a wall st. investor.  The idea that it would make me part of the investment class is laughable.

        I tend not to appreciate socialized losses for investors either.  But when the loss is caused by the government in the first place, and much bigger losses have already been reimbursed (to the actual people that caused them!), clamping down on working people is not an option in my book.  

        I exclude from my arguments those people who fed the bubble, expecting to buy houses and resell them quickly at fantastic profits.  As you pointed out above, the first areas to be hit with the housing crisis were areas of bad employment, NOT bubble areas.  Many parts of the country saw little, if any, inflated home values during the bubble, and these include Detroit and Cleveland.

        My point about pensions, employment and 401ks is this -  workers who are struggling to stay in the middle class and doing everything right have been attacked on all fronts by the last decade of government policy.  Simply everything people do to try to get ahead has been wiped out by corporatism.  The government has done this to them, and as far as I know, there are no plans being pushed forward to restore any of the losses to these folks except involving propping up the housing market.  This is the only lifeline being held out to them.  To state that these people are "investors" who should accept their "losses" is ridiculous to me.  It wasn't their risk -  they didn't even have a chance to accept the underhanded dealing that led to this mess.   It's not their loss -  these things were stolen from them.

        There's a bit of a smell of judgement, blame, and jealousy in your diary, and it seems to me you've got some kind of chip on your shoulder against people who own houses in general.  I think otherwise you would have discussed the fact that we are speaking of more than one type of situation, and you would have put more thought into the causes and effects, instead of considering all homeowners to be investors who should suffer their own losses, and sit in their rotting communities and just suck it up.

        •  houses depreciate over time (0+ / 0-)

          Buying a home is perhaps the one thing that people can spend money on that will provide them with some security and stability, unlike other big purchases which depreciate and turn into junk over time.

          I would offer a different perspective on real estate. I know the NAR et al have driven it into people's heads that your home is your best investment, but it's just not true. Your home is an investment, just like any other. You pay management fees just like owning a mutual fund. You pay commissions just like visiting a financial planner. In fact, maintenance on a house is rather expensive. If the house wasn't maintained, it would depreciate in value rather rapidly. What goes up in value, in fact, isn't the structure at all. It's the land. And of course, there's no guarantee the value will go up; just look at any abandoned parts of our urban cores, and you'll see land that 'should' be extremely valuable is worth, in practice, next to nothing.

          Housing, shelter, is consumption today, not investment tomorrow. This notion that has gotten tacked onto housing, that it can also be a good investment, has gotten really out of hand the last decade and a half or so, to the point where a lot of people were effectively swindled into debt they really had no (objective) reason to take on (and the lack of prosecution of this massively widespread fraud is one of the key non-stories of the Bush Administration).

          In your mind this makes this an asset, which is true, but to me that's a secondary characteristic, with the primary being shelter, and, if ownership is actually achieved, the one point of stability for people who are pretty much at the mercy of the big fish in the pond.

          I think we agree on this. But, I'm observing that while I wish this were true, it's not. People on a large scale have made decisions over the last couple decades to stretch themselves thin buying housing they really can't afford on the hope of striking it rich, benefiting not from living in the house but from selling it somebody down the road for more than they paid for it. I think much better public policy would be to strip away the investment component, to turn housing back into the 'being shelter' that it should be. In fact, the ironic thing about shelter is that ownership isn't stable. Repair bills come unexpectedly. People move frequently. The 'buy as much house as you can' ethos has created whole new classes of investment, with people 'moving up' from one level of the market to the next. Etc.

          Who would you like to own all the necessary living spaces?  Landlords?  To my mind this creates an ownership class to which working people could never aspire.

          I don't have intentionality behind my desires for ownership. What I desire is affordable housing. What I want is for government to stop subsidizing ownership. I want individuals to make their own decisions about what kind of housing situation is best suited for them. I don't want a society that says one kind of arrangement is better than another. And I don't like confusing debt with ownership. Working class folks need higher wages. A mortgage has no intrinsic value.

          There is a situation in Japan now, which I keep equating to our health care situation, where employers are in charge of providing housing.  When the economic slump hit, rather than finding themselves without healthcare, these people found themselves homeless.  Not saying you're recommending this, but it's one example of what happens to people who are not in charge of their own basic needs.

          I'm not familiar with the details in Japan. My basic understanding is that because the Japanese place high social value on workplace stability, the outgrowth of this during their economic struggles has been making it more difficult for young people to get into a good employer and more difficult for there to be financially rewarding career paths for moving 'up' within companies (I think the term 'freeter' has become associated with the long-term temp kinds of jobs that characterize these difficulties). My general understanding is that despite massive macro-level economic malaise, the average worker in Japan has done reasonably well. Wealth concentration is much less of a problem, and public transportation makes the major cities accessible for people. Considering how much less land and natural resources Japan has relative to us, I think their housing situation is remarkable. We could guarantee affordable housing to every American citizen for a pittance. I just don't know enough about Japan to make more meaningful comparisons to housing policies in the US. The Japanese seem to have understood the need for frugality better than us, whether that's 'good' or 'bad' I don't think we can evaluate until we see just how our country responds to the crash of the housing bubble.

          You might like this perspective on Japan recently.

          Your arguments against homeowners in general don't sit well with me.  They smack of a Republican characteristic of blaming the other small fish in the pond, while the big fish eat everything up.  I think worrying about "asset owners" makes sense when you go after those who make their money (I won't say earn a living, because they don't earn it), from money.  That's the "asset and investment class", and I have no problem with fighting government efforts to fund them.  There is a huge distinction between those people and people who work for a living and try to set something aside to responsibly take care of themselves.

          I'm sorry, I don't quite follow. My argument isn't against homeowners. It's against giving taxpayer money to homeowners. And if you look at my description of the problem, you'll see that I highlight

          lax regulation and enforcement of laws (especially fraud)

          as one of the key public policy failures of the past decade. Furthermore, I'm precisely targeting

          the big fish that eat everything up

          by pointing out that the real estate lobby (the NAR, the NAHB, the MBA, etc) are major beneficiaries of the tax credit. One of my core critiques of this policy is that a lot of the money doesn't go to homeowners. Again, I would urge separating 'people who work for a living' from owning real estate. Work, not real estate, is precisely what public policy should support. If people have decent wages, real estate takes care of itself. And I would offer the reminder that home owners on average are wealthier than renters. And I would challenge you to name one homeowner, anywhere, who volunteered to pay taxes on the sale of their house that they were not obligated to pay. When it comes to profiting from their house, homeowners don't share the wealth any more than owners of any other asset class.

          I have a 401k.  I suppose this makes me a wall st. investor.  The idea that it would make me part of the investment class is laughable.

          Maybe you didn't get into the 'government by DOW' discussions that have gone on. First, I would point out that a tax-advantaged retirement account is just that, a tax-advantaged retirement account; what you put in it determines what's in it. If you choose to put stocks and bonds in your account (as I choose to do in my personal retirement accounts), then you absolutely are investing money. To get back to lax regulation and law enforcement, absolutely there are differences between small investors and big investors. But the public policy answer isn't to prop up the value of our investments. Rather, it's to create a stable regulatory and legal environment where investments don't need propping up.

          I tend not to appreciate socialized losses for investors either.  But when the loss is caused by the government in the first place, and much bigger losses have already been reimbursed (to the actual people that caused them!), clamping down on working people is not an option in my book.

          I think we agree here. I would respond, though, that two wrongs don't make a right. If we don't object to all wasteful spending, then when we object to some wasteful spending we have no principle for our argument. Finally, I would point out that that's part of the impetus for this diary. If we're going to do this kind of subsidy, let's do it more effectively than the Isakson/NAR approach.

          My point about pensions, employment and 401ks is this -  workers who are struggling to stay in the middle class and doing everything right have been attacked on all fronts by the last decade of government policy.  Simply everything people do to try to get ahead has been wiped out by corporatism.  The government has done this to them, and as far as I know, there are no plans being pushed forward to restore any of the losses to these folks except involving propping up the housing market.  This is the only lifeline being held out to them.  To state that these people are "investors" who should accept their "losses" is ridiculous to me.  It wasn't their risk -  they didn't even have a chance to accept the underhanded dealing that led to this mess.   It's not their loss -  these things were stolen from them.

          Again, I think we largely agree. I would just tweak this slightly. You seem to think that people who buy property shouldn't bear any risk of loss. That is not capitalism. That is not private property. If people who buy things cannot be responsible for what they buy, then the whole concept of private ownership is indicted.

          However, responsibility is not just on the buyers. And indeed, in the past decade, the bulk of the fraud was very top-down, purposeful corporate strategy. And that actually hints at the solution. Taxpayers shouldn't bail out the losses. The financial services companies should bail out the losses. If lenders don't have to eat their losses, then not only is it bad policy today, but it makes them even more dangerous in the future because they simply expect taxpayers to fork over whatever is necessary to cover their theft/miscalculation/whatever. When a debt goes bad, the creditors should pay. This is a fundamental principle. Private liabilities should not be nationalized onto the public treasury.

          There's a bit of a smell of judgement, blame, and jealousy in your diary, and it seems to me you've got some kind of chip on your shoulder against people who own houses in general.  I think otherwise you would have discussed the fact that we are speaking of more than one type of situation, and you would have put more thought into the causes and effects, instead of considering all homeowners to be investors who should suffer their own losses, and sit in their rotting communities and just suck it up.

          I'm certainly outraged and disgusted that we can bail out the thieves and crooks in the FIRE industry (finance, insurance, and real estate) but we can't even discuss worker rights, universal unemployment insurance, universal health insurance, universal daycare, mandatory paid time off, etc, etc.

          Indeed, when crime happens, particularly on this scale, how is judgment not involved? When taxpayer money is wasted on program after program after program, how can we hold people accountable if there's no blame? What's truly remarkable to me about the past decade is how so much has been f'ed up yet miraculously no one really is to blame for it...

          As for jealousy, I don't quite follow. My roommate filed her amended tax return and should get her $8,000 check from the IRS any day now. If the tax credit is extended as the lobbyists want, I will very likely take advantage of it next year myself.

          As Dean Baker commented

          (Full disclosure: I benefited from this tax credit -- thank you very much, suckers!)

  •  You missed the primary beneficiary (3+ / 0-)
    Recommended by:
    KenM30, wa ma, Egalitare

    of the program and the reason it exists at all. It is designed to help the banks by artificially keeping the sales prices of homes higher, thus allowing the banks to avoid devalueing the homes they have repoed and the values of the loans for homes they have made.

    This is not about the consumer or all those little real estate agents, they can all go die as far as our politicians are concerned. It is about helping their friends and owners, the banks.

    •  banks are a key actor! (0+ / 0-)

      Sorry, perhaps I shouldn't use acronyms. The major lobbyists behind the housing subsidies are the NAR (National Association of Realtors) - 'those little real estate agents' - the NAHB (National Association of Home Builders), and the MBA (Mortgage Bankers Association).

      As I commented

      Isakson even names the lobbyists.

      My legislation has been endorsed by the U.S. Chamber of Commerce, National Association of Realtors, Business Roundtable Housing Working Group and Mortgage Bankers Association.

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