The full-court press that the housing industry is applying to federal and state legislators to expand the federal tax credit for home buyers and provide local incentives to buyers and builders has shifted towards a greater emphasis on the connection between residential construction and economic improvements that lead to higher employment levels.
That emphasis couldn’t have been made clearer than in testimony that Ronald Phipps, a vice president with the National Association of Realtors, gave on Tuesday to the Senate Banking, Housing and Urban Affairs Committee. Citing Arun Raha, chief economist for the state of Washington, as his source, Phipps told lawmakers “every 1,000 home sales generate $112.4 million of economic activity, with $71.9 million of it directly from home-sale preparation and the actual real estate transaction. In addition, more than 700 new jobs are created.
“This is not a balance-sheet bailout,” Phipps went on to say about extending the tax credit beyond its Nov. 30 cutoff. “It’s real help for our neighbors and communities.”
Last week, NAHB economist Elliott Eisenberg made pretty much the same point. Speaking at a conference in Billings, Mont., Eisenberg noted the money that contractors and their subs are paid during the construction phase of a house streams into the community in the form of retail sales. He added that the construction of 100 homes will generate $2.1 million more in tax revenue, over a 15-year period, than what it costs to provide municipal services to them.
It remains to be seen whether politicians in Washington buy these arguments. But a growing number of states and municipalities across the country, whose tax revenues have been stripped and workforces depleted by the recession, seem more willing to dip into their general coffers to give builders a reason to start building again.
In many cases, that’s meant revisiting impact fees. A headline over a story in last Wednesday’s St. Petersburg Times—“Hernando County may reduce impact fees to help jump-start home building”—sums up the thinking of a Florida county with nearly 14% unemployment, whose commissioners voted to lower impact fees to around $4,800, or $4,000 below current levels. The City of Fresno, Calif., in July indefinitely deferred parks and fire fees for a dozen developers and 970 residential lots, which is expected to save them an estimated $3.4 million. The city of Huntington Beach, Calif., has deferred impact fees up to $30,000 per unit through March 30, 2010.
“Construction is something that can put people to work fairly quickly,” observes Daniel DeVito, director of inspections and permits for Washington County, Md., whose commissioners last week voted in favor of launching a short-term stimulus program that provides up to $9,000 in upfront incentives for new homes.
DeVito told BUILDER that the impetus for the program was actually a local builder, Dick Gruber, “who wanted to build a new house for himself and was very vocal about all of the fees and taxes attached.” That got DeVito—who once worked as a construction laborer—thinking about how the county might help put contractors back to work in a market whose annual housing starts are down to between 150 and 200 this year, from more than 1,100 in 2005 and 2006.
Lowering permit fees that average only around $1,000 “wouldn’t be enough,” says DeVito. So his department devised a program that not only reduces those fees by 50% (and 100% for homes built to Energy Star standards), but also provides builders with a credit for excise taxes that average $3 per square foot (and have been payable when the permit is issued). “This is an upfront savings for builders,” he says.
The excise tax credit is available for homes issued permits through Feb. 1, 2010, or until the county distributes credits for 150,000 square feet of residential construction, or roughly 60 houses. DeVito says that builders also must show the county how they are passing these savings along to home buyers. His department will conduct a survey of this program in January, and if it’s successful he believes the commissioners would extend it. Several towns around Chicago have introduced their own builder incentives, such as a pilot program encouraging energy-efficient construction that was approved by Bolingbrook, Ill., on Tuesday.
Right now, virtually nothing is being built in the village of Bolingbrook, says its attorney Jim Boan. Only about 150 to 200 permits will be issued this year, versus more than 1,000 three years ago. So the village's board is experimenting with a program where it will reimburse builders half of their application fees up to $10,000 per unit if they build to Energy Star specifications. The rebate pool is only $50,000, which means that only five or six homes will be involved in the pilot. But Boan told BUILDER the village plans to take a second look at the abatement once the program expires on Dec. 31, to see if it’s worthwhile extending into next year.
John Caulfield is senior editor for BUILDER magazine.