Mayor Beutler has provided some details
about his housing stimulus plan. For starters, local homebuilders and Realtors have tossed $100,000 into the pot -- which tells us a fair amount about some of the folks who stand to gain from the plan.
The plan looks like this:
- $5,000 to purchasers of new homes up to $325,000 (72 homes)
- $2,000 to purchasers of new homes up to $325,000 that have never been owner-occupied (i.e. they have been rented) (100 homes)
- $1,000 to purchasers of pre-owned homes up to $150,000 (100 homes)
Councilman Ken Svoboda wants to increase the cap on home price to allow more expensive houses to qualify. He says that even though purchasers of more expensive homes aren't likely to be swayed by the payments, the increased tax revenue from their house purchase more than offsets the cost of the payment. His logic is screwy. If the payment has no effect on their decision to purchase, then why give them the free cash? For people who are going to purchase a house anyway, the cash giveaway is a net loss
for the City, not a gain.
In fact, the value of the plan to the City is only equivalent to the tax collections that would not have been made "but for" the stimulus plan. (It's the same "but for" test used in TIF decisions.) For pre-owned homes, then, the value to the City is always negative. Property taxes are always being paid by the owner (even if the house is empty) so the City isn't losing out on any income while the house is on the market. The only return on the City's $1,000 investment comes from: an increase in the taxable value of the property as a result of the house sale; sales tax revenue from anything purchased with the $1,000 within the City; and any "trickle-down" taxes as a result of purchases within the City. None of that adds up to an amount greater than $1,000.
The same should be true of the $2,000 payments.
That leads me to this question: Are unsold, empty, new houses subject to the same property taxes as their occupied equivalents? If so, then the same reasoning applies. If not, then the added value to the City comes from property taxes collected between (a) the purchase of the house thanks to the $5,000 payment, and (b) when the purchase of the house would have occurred even without the payment. For some houses that time will be zero. For others, it might be as much as a couple years. But even then the value is less than $5,000.
This quick analysis leaves out a few things. For example, it doesn't include the economic value of occupied houses versus unoccupied houses. It also doesn't make any attempt to account for potential "snowball" effects. That is, if one or a few houses sell thanks to this plan and those sales (help to) kick off an earlier turnaround in the local housing market than otherwise would have occurred.
All things considered, I can see how the stimulus plan is a boon to local homebuilders, Realtors, and developers, but I'm not convinced it helps out taxpayers to the extent that Mayor Beutler seems to think it will. Am I wrong? Is my logic illogical? Tell me all about it in the comments.