Monday, February 23rd, 2009 at 8:40 AM
State Tax Credit for New-Builts
We were talking about the possibility of the feds doing some sort of tax credit to spur home-buying, and I forgot to mention that the State of California snuck a $10,000 tax credit into their sauce last week – but just for new homes bought in the next 12 months.
Here is the FAQs from the California BIA – not sure how much they paid for the special treatment:
How much is the state tax credit?
The state tax credit is for $10,000 or 5 percent of the purchase price of a newly built home, whichever is less. The home must be the principal residence of the buyer, and the sale must close between March 1, 2009 and March 1, 2010.
How does the tax credit work?
The credit will be provided in equal amounts (up to $3,333) per year, over three successive tax years, beginning with the year the purchase is made.
Will I receive the credit if I buy an existing home?
The credit is only for the purchase of a newly built home that has never been occupied. That is because building a new home generates more tax revenues than the credit will cost the state.
Are there any other restrictions?
The taxpayer must live in the home as their principal residence for at least two years. If he/she does not, he/she will have to repay the credit.
How much money is available under the program?
The law limits the total amount of credits that can be claimed to $100 million. Credit reservations will be allowed on a first-come, first-served basis. It is likely that the full amount will be exhausted this year, so prospective buyers should move quickly.
Can the credit be used in conjunction with the recently enacted federal tax credit?
Yes. If you buy a new home between March 1 and Dec. 31 and are a first-time homebuyer, you can take advantage of both the $10,000 state credit and the $8,000 federal tax credit.
Why is the credit needed?
Confidence in the housing market needs to be restored. Consumers, fearing declining home values, have been afraid to buy, which keeps prices spiraling downward. But a similar federal tax credit, enacted during similar circumstances in 1975, caused buyers to jump back into the market, leading to a doubling of home sales and quickly stabilizing the market.
How can the state afford a tax credit while trying to close a massive budget deficit?
A study coauthored by a former state finance director shows that, on average, every home built in California generates $16,000 in state revenues and another $3,000 in revenues to local governments. That means that even after providing the tax credit, the state will receive a net $6,000 in additional revenues. Furthermore, the $16,000 will be generated when the home is built, and the credit will be spread over three years.
Why should we build new homes when there are so many foreclosed homes on the market?
There are two reasons. First of all, building homes generates tax revenues and puts people back to work. The state has lost more than 300,000 homebuilding-related jobs during the past 2½ years, which has been a major factor in causing the current economic recession and rapidly rising unemployment rates. Second, the unsold inventory of existing homes has fallen sharply during the past year and in December stood at less than six-month’s supply, down from almost 17 months’ supply at the beginning of 2008. Economists say when supply drops to the current level, it’s time to start building again.
(hat tip to RE for the reminder!)
Posted on Monday, February 23rd, 2009 at 8:40 AM in Bailout | 23 Comments » | 
Print
You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.
I like their reasoning – $16K collected in taxes less $10K in credit – hey, $6K profit for the state.
What would be an alternative? Having the builders reduce the price, collect $15K in taxes with $0 in credit – $15K profit for the state.
Clearly, the scenario #1 makes more sense.
Alex | February 23rd, 2009 at 8:52 amAnything that encourages new home building is a step in the wrong direction, IMHO. I’d rather see that money used to retrain unemployed construction workers into other trades. Road work would be first on my list.
Kwaping | February 23rd, 2009 at 9:06 amThe argument that the $10K credit doesn’t cost the state any money is specious at best since it only increases revenues in marginal cases where the $10K made the difference between the builder building, and the builder not building. Moreover, since it takes a while to build, this credit won’t (or shouldn’t) affect the builders’ current decisions. There’s no way that the state is going to see those $10k come back through the builders.
I guess the only way that this makes sense is as an attempt to reduce the current inventory – older houses get foreclosure moratoria, while newer ones get buying incentives.
NateTG | February 23rd, 2009 at 9:26 amOverall, these credits piss me off. What about the responsible home buyers that have closed on a home recently (not 1st time buyers). We play a role in holding up this crumbling house market too and yet we get no reward for acting fiscally responsible. If you have a down payment, sold a home to purchase one and good credit, you get nada, nothing, zippo. Not even a lousy discount on your rate! SUCKS!
sdmomma22 | February 23rd, 2009 at 9:35 amYou get a $10k tax credit for buying a new house and 6 months later the house is worth $25k-$50k less. Something isn’t quite connecting for me…
GeneK | February 23rd, 2009 at 9:39 amI wonder if people realize that the Dow has lost around HALF it’s value in 1 year.
2/23/08 Dow was around 12600
shadash | February 23rd, 2009 at 9:54 am2/23/09 Dow is around 7225
This blows. It needs to be retroactive to homes purchased in last 3 years and/or use bailout money to payoff/buy down the balances of Mello-roos bonds, if they really want to spur new home purchases
Yoker | February 23rd, 2009 at 10:14 amEvery day I feel more like I’m living in Bizarro World…
greenlander | February 23rd, 2009 at 10:26 amIt cracks me up to y’all gripe about the “did the right thing’ people getting screwed. Dudes, that uis nothing new! Those “with money” have been subsidizing those “without” for decades!!!
Aztec | February 23rd, 2009 at 10:37 amAztec, you may not have done the math but lately that subsidy has grown exponentially. You and every citizen now owe $40K for these spending sprees, where 8 years ago you owed half that much. The fact that you can’t notice the difference is the main reason why they get away with it. Politicians rely on ignorance, they need little else.
sdbri | February 23rd, 2009 at 10:53 amI’m all for it. I’m looking to purchase an older home this year so I won’t get it. But that’s okay with me.
A one year program like this should be tried.
I would add to Shadash comments that October 9, 2007 the Dow was at 14,164.
Mozart | February 23rd, 2009 at 11:52 amThat means that even after providing the tax credit, the state will receive a net $6,000 in additional revenues.
If that is so, why not provide the tax credit all the time? And why doesn’t every state do this also?
Heck, let’s just burn down all the existing homes and build new ones. It’s what this tax credit is doing! Lowering prices of existing homes while inflating prices of new homes. I’m sorry, I meant “stabilizing” prices of new homes.
Economists say when supply drops to the current level, it’s time to start building again.
Yup, as long as the government has taken over the banking industry, car industry, mortgage industry, why not house construction too.
no bubble here | February 23rd, 2009 at 12:25 pmInstead of rebating to home buyers, this rebates to only buyers of a NEW Home?
I, too, wonder what sweet nothings these home builders had whispered into legislature’s itchy ears.
Perhaps… There are ton of vacant newly built homes being offered for deals that no one can refuse that none of us know about?
Or may be the glut of REO and SS listings are just a mirage?
“Economists say when supply drops to the current level, it’s time to start building again…”
Very nice! I wonder which Ecomomist said that…
Let’s just build track houses all across the mojave and, hallelujah, we all will be saved!
It was only 4-5 years ago that these same builders were hiking prices on every new home released. The houses in next phase were always more expensive than the house from previous phases.
Builders made their money. Why do they need help any more than the next guy? $10,000 credit is almost like 1/2 of new Car?
Not that I’m advocating but new home builder get tax payer help and we are arguing should or should we not bail out GM?
What kind of upside down world do we live in?
Bigger Better | February 23rd, 2009 at 12:31 pmOh wait… I know… The kind of world where every gots to pay to play. And nothing is better than betting with house money!
On the tax credit, whoopty doo… $10,000 on a California $700,000 dollar home is only 1.4%. I’ll wait for the price drop instead! Now if it was a straight 10%, no matter what the price, that would be more inviting.
On the gov’t takeover of banking, housing, autos, etc., Obama forewarned that he was going to spread the wealth, i.e – socialism, and increase taxes on the rich. This is how he’ll solve the deficit problem and how he’ll keep everyone employed in an economy that has no real new industries to keep it afloat.
Blue Streak | February 23rd, 2009 at 1:26 pmI happen to be back in RB for a couple days. As a former resident of both “ends” of RB (Gatewood on one end, Westwood on the other), I went out for a drive on the former Black Mountain Road into 4S. Holy Jeebus. I knew that area had been built up, but really? Its an endless swath of humanity to the Ocean now. It used to be a 2 lane road where a break-down meant a long walk to civilization.
I guess these are the people who will get the tax credits…
Former RB Resident | February 23rd, 2009 at 3:03 pmAll of the new homes in my area are still way overpriced. Even with a $20,000 tax credit, it wouldn’t make sense over a resell. Plus, they have no landscaping and the ones that are left have bad lots.
Regarding all this silly socialism speak, remember that there was a democratic election and the people voted for change. People out there are hurting and a lot of people, myself included, believe that doing nothing is not going to help. Just because you aren’t getting the help doesn’t mean it’s a stupid government program that isn’t going to work.
Often times, you need to throw several solutions at a challenging problem before one actually works.
SEH Looker | February 23rd, 2009 at 3:47 pm“Plus, they have no landscaping”
I think the HOA rules in SEH must ban landscaping, at least anywhere visible from the San Elijo Road.
GeneK | February 23rd, 2009 at 4:10 pmAs others pointed out, a $10K credit comes out to about a 1%-3% discount. This is in an industry that’s trying to offer 10%+ in incentives (intentionally to hide the true purchase value of the house rather than reduce prices).
In any case, many REOs are selling below replacement costs and the battle isn’t going to be pretty:
http://www.calculatedriskblog.com/2009/02/home-builder-we-cant-compete.html
‘As one developer said: “We can’t compete even if the land is free!”‘
Guess who’s discounting harder?
sdbri | February 23rd, 2009 at 4:39 pm“Plus, they have no landscaping”
I think the HOA rules in SEH must ban landscaping, at least anywhere visible from the San Elijo Road.”
I was referring to the new homes being offered new by the last of the remaining builders around here (Richmond America, Brookfield and Standard Pacific). There are very few resells that are completely barren – maybe the ones that were purchased after 2007. They only give you 6 months to put in something.
I assume this is more SEH bashing which, as an owner here since 2001, is really starting to get to me.
SEH Looker | February 23rd, 2009 at 4:43 pmWould building a new Earthship qualify for the tax credit: http://www.youtube.com/watch?v=L9jdIm7grCY
GameAgent | February 23rd, 2009 at 5:00 pm“I assume this is more SEH bashing which, as an owner here since 2001, is really starting to get to me.”
We heard a lot about SEH before we moved down here and gave some thought to looking at houses there, but the first time we drove through it was enough to change our minds. I confess I’ve never turned off the main road while driving through it, and maybe it looks better once you do, but the view from San Elijo Road makes us think of Nevada ghost towns. Perhaps the developers should devote more attention to the public areas than to worrying about what new homeowners to do their yards.
GeneK | February 23rd, 2009 at 6:21 pmWould this credit apply to never-occupied homes that are now bank-owned REOs from troubled builders (or flippers who never lived in them)?
shoppingaround | February 24th, 2009 at 3:10 amHmmmmmm….
State “revenues” known the rest of us dweebs outside the public sector as “taxes”
Mudd | February 26th, 2009 at 1:54 pm