In a full-page ad in USA Today and letters to the House and Senate leadership, the National Association of Home Builders last month called on Congress to make housing incentives a key part of any economic stimulus package being crafted on Capitol Hill.
“Any stimulus plan needs to address the housing downturn in order to stabilize financial markets and get the economy moving forward,” said NAHB President Brian Catalde, a home builder from El Segundo, Calif.
In addition, Catalde urged Federal Reserve policymakers to enact further interest rates cuts when they meet at the end of the month to restore confidence and increase liquidity in the financial markets.
To help stimulate the economy and address the current housing situation, NAHB, in a letter to lawmakers, urged them to consider the following policy options when crafting a stimulus package:
• Create a tax credit for the purchase of a home. This would help to eliminate excess inventory, relieve some of the pressure on falling housing prices and increase housing demand, particularly in a period of tightening mortgage lending requirements. As former Federal Reserve Chairman Alan Greenspan noted in November, 2007, reducing inventory is critical for the health of the economy, and a tax credit would be the easiest and most cost-effective way to achieve this goal.
• Expand the net operating loss tax deduction. Under present law, a business loss can only be deducted from taxes paid from the previous two years. If the loss cannot be carried back, it must be used in the future. Most of the large, national homebuilders are now reporting financial losses when a few years ago they were generating jobs, providing local development and paying taxes. Expanding the NOL carry-back provision to five years would enable builders and other businesses to receive an immediate rebate on taxes paid in previous years and provide a much-needed infusion of capital to their businesses. The inability to do so will result in the need to either increase high-cost borrowing or further liquidate land and homes, which would only compound the existing inventory problem.
• Expand the mortgage revenue bond program. The mortgage revenue bond program allows state and local governments to issue tax-exempt debt that may be used to finance mortgages at below-market rates. Expanding the reach of the program would be of particular help to communities experiencing the possibility of a wave of foreclosures or an extreme excess of inventory.
• Designate housing as an eligible investment for tax-preferred retirement accounts. Congress could increase home purchases by making a down payment an eligible investment from tax-favored retirement accounts. Housing wealth is the most important source of savings for most families, and the ability to move wealth from a money asset (tax-favored retirement) to another (a home) should be an important part of any stimulus package.
• Increase the conforming loan limit for Fannie Mae and Freddie Mac. NAHB believes that Fannie Mae and Freddie Mac offer tremendous potential to relieve liquidity and inventory pressures in the jumbo mortgage markets and bring immediate benefit to the overall economy, particularly to high-cost states such as California. A temporary increase in the conforming loan limit as part of comprehensive regulatory reform of Fannie Mae and Freddie Mac is a key ingredient to restore housing and credit market stability.
• Modernize the Federal Housing Administration. A revitalized FHA would be well-positioned to provide reasonably priced down payment mortgage solutions to millions of America’s less affluent home owners and potential home buyers. It would also help in reducing the excess inventory on the housing market. The House and Senate need to move quickly to reconcile their bills and bring legislation to the President’s desk that will increase the availability of affordable FHA mortgages.