Tax Credit Gets Credit

Builders say it's driving sales of homes, call for cap to be raised

By J.N. Sbranti
jnsbranti@modbee.com

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State tax credits for new home buyers fueled demand and sparked sales this spring. Now California home builders want lawmakers to triple the number of homes eligible for the credit to stimulate construction.

"They need to keep throwing wood on the fire," said Robert Martelli, sales and marketing director for Turlock's JKB Homes.

Martelli said the $10,000 state income tax credit, which started in March, "has given people a reason to get off the fence and buy a home." He said it has helped increase sales at JKB's developments in Riverbank, Hughson and Denair.

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"The tax credit has been very important for our sales," agreed Steve Mothersell, president of Modesto's SCM Homes.

"We have closed more sales so far this year than in all of last year," said Mothersell, who has three subdivisions in Newman. Because of the tax credit, "we're starting to build more, which is creating more jobs."

The state-sponsored incentive, however, is capped at $100 million, and about $88.3 million of it has been claimed. At the pace new homes are selling, the credit could be gone in a couple of weeks.

"The tax credit is clearly working better than anyone thought — increasing home sales and new construction starts. And that means jobs," said Robert Rivinius, president of the California Building Industry Association.

"To keep the momentum going, it's critical the Legislature and governor act quickly to renew the credit," Rivinius said. "Historically, the housing industry is what leads the nation out of recessions. If given more time, we believe the tax credit will help the industry recover, and in turn, the overall economy, much more quickly than it otherwise would."

The building association wants the tax credit cap raised an additional $200 million. Rivinius said that could keep "the positive momentum going while generating construction and much-needed tax revenues for the state and local government."

Rivinius said a typical home generates $16,000 in state tax revenues and $3,000 in local tax revenues because of construction jobs and associated purchases. Revenues from income, property and sales taxes increase with every home built.

But home building has dwindled dramatically in recent years, building industry statistics show.

There were 108,094 single-family-home permits issued in 2006 in California, but that shrunk to 32,233 last year. During the first four months of 2009, only 6,599 permits were issued, making this the slowest building year since World War II.

The decline has been even more drastic in Stanislaus County. Building peaked in 2005 with 4,489 single-family-home permits. It plummeted nearly 90 percent to 464 permits last year. The decline continued this year, with just 71 permits being issued from January through April.

Mothersell said his subdivisions have slashed prices to attract buyers. The cheapest homes — 960-square-foot, two-bedroom houses on small lots in Newman's Park Villas — are priced at $109,900.

"These prices really just keep us alive, keep our people employed and retire some of our debt," Mothersell said. "It's called survival."

While builders struggle, Martelli said buyers benefit: "Everybody who buys a new house now is getting it at below what it costs to build."

JKB is selling homes for as little as $212,000 in Denair and $220,000 in Riverbank.

Assorted government-sponsored programs lower the final cost of home purchases. There's an $8,000 federal income tax credit for first-time buyers, a state rebate of school impact fees for some new homes and assorted down-payment assistance programs for low- and median- income buyers.

Those are in addition to the state income tax credit, which can provide up to $10,000 in tax breaks for those who buy new homes.

Since that program began in March, about 9,200 California home buyers have applied for the credit. That includes 20 home buyers from Modesto, 68 from Manteca, 28 from Merced and dozens of others from cities throughout the region.

For more details about the state tax credit for new home purchases, go online to: www.ftb.ca.gov/individuals/New_Home_Credit.shtml.

Bee staff writer J.N. Sbranti can be reached at jsbranti@modbee.com or 578-2196.