Pressure on lawmakers to extend and increase the federal tax credit for home buyers has intensified in recent weeks. Congressional committees are now weighing no fewer than seven housing tax credit-related bills. Prominent business groups have lent their support for such measures. And governors of several states have authorized their own tax credits or advances on the federal credit. So far, though, only lawmakers in California have indicated they’d like to see their state’s largesse extend beyond this year.
In Washington D.C., bills under consideration by House Ways and Means Committee and Senate Finance Committee are, in many respects, variations on the same theme. They would extend the federal tax credit to all buyers, not just-first-time buyers to whom the current tax credit is confined. All want the tax credit to be available to buyers into 2010. Most would eliminate income restrictions on who’s eligible for the credit, and reduce the time buyers must live in the house purchased as a primary residence to two years, from three under the current bill.
That’s not to say, though, that these bills don’t have their unique aspects, which revolve around the size of the credit and how long it will be available. The most generous bills have been introduced by Senator Johnny Isakson (R-Ga.) and Rep. Ken Calvert (R-Calif.). Each would bump up the tax credit to $15,000 or 10% of the home’s purchase price, whichever is lower. Calvert’s bill—which has been floating around since March 2 and had 25 cosponsors as of last Friday—would extend the credit to July 2010; Isakson’s bill, with 14 cosponsors (including Connecticut Democrat Chris Dodd), would make the credit available to buyers for one year after it’s enacted.
Congress’ Joint Committee on Taxation sent a letter to Isakson’s office on June 12, with its estimate that his bill would cost $38.5 billion from 2009 to 2014. That’s more than double the estimated $17 billion price tag for the current federal tax credit, which expires on Nov. 30, 2009.
Supporters of Calvert’s bill include Rep. Dan Burton (R-Ind.), who has also submitted his own home buyer tax credit bill that extends the period of availability to Jan. 1, 2011, but keeps the credit at its current level of $8,000, as do the other bills under consideration, including one introduced on May 21 by Rep. Eddie Bernice Johnson (D-Texas).
Some bills, though, have twists. Rep. Jerry Moran (R-Kansas), introduced a bill on June 16 that would extend the credit’s availability to January 1, 2012. Conversely, a competing bill by Rep. Kenny Marchant (R-Texas) would extend the availability of the tax credit only to July 1, 2010, but also offer buyers another $3,000 credit to cover refinancing costs.
Evidence that lawmakers are feeling more heat from constituents to spur home buying can be found in tax credit extension bill that Rep. Howard Coble (R-N.C.) introduced on June 10. Ed McDonald, Coble’s chief of staff, told BUILDER last week that his boss got interested in the issue only after he was buttonholed by a local builder “who told the congressman that he would not be able to sell houses without the tax credit.”
Several leading business groups, including the Mortgage Bankers Association, the National Association of Realtors, the Economic Outlook Group, and the Business Roundtable, have been urging Congress to act swiftly to extend and expand the tax credit. “There’s near total agreement among real estate-related trade groups that the $15,000 unrestricted credit is the single greatest thing we could to do stimulate the housing market,” states the American Land Title Association (ALTA) in a letter it sent to Congress. A survey that ALTA conducted this month found that 46% of the land title professionals it polled saw an increase in purchase transactions with first-time buyers as a result of the $8,000 tax credit.
Congress has a pretty full plate and is unlikely to address the tax credit issue until after its summer recess. That would be okay with the NAHB, which wants Congress to hold off until the current bill is nearer its expiration date so that it doesn’t lose any of its urgency with buyers. But McDonald believes it’s more than likely that a version of one of these bills could become law before this session of Congress adjourns on Oct. 6. “When you have six bills dropping all at once, that’s a good indication that something is likely to pass,” he said. And given that the Democrats control Congress, McDonald concedes they are likely to favor one introduced by a party member, such as the bill submitted on April 21 by Rep. Joe Courtney (D-Conn.), which extends the current $8,000 tax credit to all buyers through Jan. 1, 2011. That bill has 21 cosponsors.
While Congress sifts through this proposed legislation, a number of states are now dipping into their own depleted coffers to lend a financial hand to home buyers as well.
In May, Georgia Gov. Sonny Perdue signed off on an $1,800 tax credit that’s available to all eligible buyers on homes purchased through Nov. 30.
The Texas Mortgage Credit Program lets first-time home buyers earning up to 115% of their areas’ median household income to deduct 30% of their annual mortgage interest up to $2,000. Through this month, the state had issued $11.5 million in credits over the previous year, and has another $25 million in its kitty, according to the San Antonio Express-News.
Kentucky Gov. Steve Beshear is expected to sign into law a budget passed by the state’s General Assembly that includes a $5,000 tax credit for all buyers. However, Beshear cautioned that this credit, which is capped at $25 million, will come at the expense of other programs. “As good as these programs and spending increases are, they will force still deeper cuts; in some cases, significantly deeper cuts to agencies throughout state government,” he stated.
Indeed, with so many states operating in the red, it remains to be seen whether any of the handful of states that offer their own tax credits or advances on the federal credit for downpayments and other costs, are willing or able to provide them beyond this year.
“With a $24 billion deficit, everything is in flux,” says Bob Rivinius, CEO of the California Building Industry Association (CBIA) in Sacramento. California has been offering home buyers a $10,000 tax credit, and CBIA is lobbying the state’s legislature to spend the entire $100 million that’s been appropriated for the tax credit through the program’s March 1, 2010 expiration date.
As of June 17, California had received 9,848 applications, with $94.7 million in total credits claimed. However, only $36.9 million in credits had actually been allocated, primarily because applicants’ tax liability doesn’t always let them to take the full tax credit for a given year, which maxes out at $3,333. The state’s Finance Tax Board estimates that the average applicant will only be able to use $1,267 per year, or $3,800 over the program’s three-year allocation period.
The state has said it would cut off accepting applications when they hit 12,000, which at their current pace should be sometime around next week. CBIA wants the legislature to lift that cap, and to use the entire $100 million. (It estimates that the program’s total credit expenditure would be around $97 million by next March, based on the current rate of allocation.) Rivinius says that California’s Gov. Arnold Schwarzenegger supports extending the program so it can allocate the full appropriation. Getting the legislature on board, though, could be more problematic.
John Caulfield is senior editor at BUILDER magazine.