Free Money

By: Mr. Wilson on August 19, 2008
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.


See what your friends and neighbors have to say about this.

Diane K
August 19, 2008 at 2:46PM

I don’t think your logic is illogical. I was thinking along the same lines.

I talked with a real estate agent and he blamed the housing slump in Lincoln on impact fees. I think the downturn in housing starts and sales could also be attributed to things like a recession or the mortgage meltdown, or people buying up houses in previous years to cash in on the rapidly increasing values and now the trend has reversed.

I live in a modest house valued at $62,000. I just can’t support using my taxes to help someone furnish a house worth $350,0000.

We have so many other things to spend $600,000 on! I don’t see how this “stimulus” plan is going to help Lincoln very much.

diane K
August 19, 2008 at 2:48PM

....$325,000. But still!

August 19, 2008 at 3:28PM

Huh?  What’s the difference between an owner-occupied house and one that is not and is not new?

They’ve both already been built, taxes are being paid, there’s no work for contractors, electrician, etc.

August 19, 2008 at 4:05PM

Explain to me why I am paying taxes so that they can be handed over as a reward to people who buy houses right now.

The realtor I talked to recently says she and her colleagues here in Lincoln are on a normal sales pace for the year and there is no “slump”.

However - lets assume we are in some sort of sales slump. Wouldn’t any person who bought a house in a slump already be benefitting by getting a lower price on said house? Isn’t *THAT* the incentive?

This feels like a bail-out for poor planning by new home builders, not a “stimulus package”. A stimulus package would be a lowering of property taxes across the board, or offering free land or a period of tax breaks to corporations who relocate to Lincoln.

I’m a social liberal who believes strongly in a capitalist economy and fiscal responsibility. Believe it or not, these are NOT disparate ideas.

Stuff like this burns my hide.

August 19, 2008 at 6:50PM

I agree with all the above. This is stupid. I also think the phrase “but for” (As described in the LJS as to the city council, not when used here by Mr. W, per se) is a stupid phrase that’s not gramattically well used. There. I said it. The time when the word “but” is used when discussing the councial should only be when spelled the other way, and used as such: “butthead,” “butthole,” etc.

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