Loading ...Why Would the General Assembly Stimulate Housing Inventories?
I’m hesitant to write this out of concern for violating Ronald Reagan’s Eleventh Commandment not to speak ill of a fellow Republican, so please understand this is a critique of policy rather than personality.
In this morning’s Joliet Herald News, House Minority Leader Tom Cross, flanked by two other members of the General Assembly and residential developers, outlines four bills they believe will stimulate housing starts throughout Illinois.
The package would create a tax incentive for home buying, give developers property tax breaks on undeveloped lots, give builders tax breaks on unoccupied houses, and reward banks that are active in the home loan market.
With all due respect, housing starts may be good for contractors, but the market does not need additional inventory right now. According to Milwaukee-based Mortgage Guaranty Insurance Corporation (MGIC), the Chicago housing marketed presently has a 14-month supply of homes on the market, despite single-family home prices being off 13-percent from their peak.
Update 2/25/09: Existing-home sales tumbled to a 12-year low in January.
Last November, MGIC placed Kendall and Will Counties, counties in Cross’ district, on restricted market parameters. This means that MGIC will insure mortgages for primary residents who have credit scores greater than 700. There are a wide range of other conditions, all very technical, but clearly MGIC thinks the housing market isn’t robust enough for supply-side stimulus because there is excess inventory supply.
Of the four proposals, HB 458 and HB 2700, which bar tax assessment increases on houses that are in mid-construction or are built but not occupied, are a start. These bills benefit the tax liability of developers who cannot sell their homes.
HB2698 provides an income tax credit up to $5,000 to the buyer of a home. Why should a developer receive a tax freeze while the owner only gets “credit?” It would be nice if this bill also provided an assessment freeze in the first year after purchasing the home, so the new owner’s could benefit like developers. In essence, the finished home would remain on the tax roll at the developer’s rate for an additional 12 months.
Finally, HB2699 directs the Illinois treasurer to deposit state funds in financial institutions that invest a set percentage of their assets into home loans. On the surface, this provision rewards banks who lend—the equation that built the housing bubble in the first place. No, the bill doesn’t demand lending to credit risks. It does, however, provide incentive to stressed lenders to take greater credit risk in return for assets on deposit. Unfortunately, an increase in mortgage lending requires greater reserve balances, so banks can’t turn all of the assets around as an investment. It becomes collateral.
Overall, these four bills will stimulate inventory. However, without a market of buyers, it makes little sense. No matter how you market the Edsel, it remains an ugly car.
The General Assembly, to stimulate the housing market, should promote ways of moving excess inventory rather than create more. This means property tax freezes for owners who purchase new homes, distressed mortgage grants, and other mechanism that increase household cash flow.
This post is cross-linked at www.IllinoisReview.com.
Here are other articles I have written on this topic:
One Response to “Why Would the General Assembly Stimulate Housing Inventories?”
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I received an email from Leader Cross clarifying HB 2698. The bill provides the tax credit to both new and existing homes.
Thanks for the information, Tom.