Housing tax credit stimulates state economy

By Toby Wells

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With California's challenged economy and state budget woes, reviving the housing market should be priority No. 1 for legislators in Sacramento. A recovering housing market has pulled the nation out of each of its recessions since World War II.

State lawmakers took a step in that direction in February, when they passed a housing tax credit valued at $10,000 for each new home purchase. They did so with the expressed purpose of jump-starting activity in the housing market as a way to help revive the state's economy.

Legislators hoped this clear benefit to consumers would encourage new home purchases which, in turn, would stimulate new home sales, new home construction, job creation and economic activity.

The good news is it has done exactly that. Largely because of the credit, new housing markets are showing signs of life and builders, contractors and construction workers are back on the job.

But the good news has produced bad news -- the tax credit has been so successful that it will run out of money by the end of June, eight months before the temporary program is to end.

With the economy still weak, state lawmakers can't afford to let a good thing die and should act quickly so this successful program doesn't go away too soon.

The Franchise Tax Board reports that close to 90 percent of the credits ($88 million-plus) have been claimed as of June 10. Home buyers are clearly responding to this state incentive.

Since the program took effect in March, home-shopper traffic around the state has increased more than 80 percent in some places and sales of new homes have doubled. And building permits for new homes are on the rise.

Locally, home builders have seen increased foot traffic and home sales in subdivisions in Santa Nella, Atwater, Ripon and Modesto. Building permits for new home construction have been pulled in Oakdale, Riverbank, Santa Nella and Turlock.

Concrete companies, roofers, painters, carpenters, electricians, and other contractors are put back to work, hiring employees, purchasing equipment and materials and stimulating our economy.

But the job benefits don't stop at the construction site. It's estimated that for every new home built, three new permanent jobs are created. So, as construction returns, appliance and furniture manufacturers, truckers, insurers, bankers, retailers, landscapers and many others are also returning to work.

And for those worried about how the housing tax credit impacts the troubled state budget, the simple answer is that the tax credit not only pays for itself, it's actually a net fiscal winner for the state.

According to a report by California's former director of finance, each new home built produces a net fiscal gain for state coffers of $16,000. That means even if all of the $10,000 tax credit is used, the state nets $6,000 in additional tax revenues. Furthermore, from a cash flow perspective, the revenue stream from this new construction is almost immediate and the cost of the tax credit is spread over several years.

Priorities one, two and three for state lawmakers should be to fix what ails our economy. The new housing tax credit has proven it works, and works well. Lawmakers should renew the authority for this successful program to ensure all of California benefits from its full economic potential.

Wells, of Turlock, is land acquisition manager for Pulte Homes and is vice president and legislative affairs committee chairman for the Building Industry Association of Central California.