I’m slowly beginning to figure out that politics is a test of wills. Whoever has the most endurance will win. My resolve is based on strength of ideas. Unfortunately, politicians are supported by power to be used as freely and stupidly as possible. Eventually, they’ll win because everyone with sense will go insane.
I’m not quite at insane, so today, this:
The Senate on Thursday passed a bipartisan package of tax breaks and other steps designed to help businesses and homeowners weather the housing crisis.
The measure passed by an impressive 84-12 vote, but even supporters of it acknowledge it’s tilted too much in favor of businesses like home builders and does little to help borrowers at risk of losing their homes.
The plan combines large tax breaks for homebuilders and a $7,000 tax credit for people who buy foreclosed properties, as well as $4 billion in grants for communities to buy and fix up abandoned homes.
And what about those of us who, while stupid enough to buy in the bubble, were smart enough to finance at a fixed-rate on a loan properly proportioned to our income? We get nothing? Mind you, I don’t want anything because I’m not interested in sending money to the Treasury so that it can then be returned to me masked as a constituent service. I’m already paying indirectly for the mistakes of others, as everyone is and must in a free market. I’m content with that because I know it works. This is just part of the process. But why should I also pay directly for the mistakes of others?
Specifically, the last thing homebuilders need right now are tax breaks that will inevitably encourage more speculation. There is an existing inventory of homes that may be purchased. Perhaps those aren’t the homes people want. I don’t claim to know, nor do I need to know. But expecting willing buyers to find a willing builder to produce the correct new home in the correct location without incentive from the government is the only reasonable position. A tax break just covers up the risk of speculation and the reality of failure. Dumb.
That’s not to say the proposed $7,000 tax break for buying a foreclosed home is any better. That incentivizes buyers into a foreclosed home over a non-foreclosed home. If they prefer the foreclosed home over a non-foreclosed home, they’ll be willing to negotiate a price without the incentive. If they prefer the non-foreclosed home over a foreclosed home, the incentive may skew their decision away. Sure, the owner(s) of the non-foreclosed home could lower their price by $7,000, but that just demonstrates the perversion Congress is imposing on them to benefit another party. It’s the same game of picking winners and losers outside of the marketplace.
Remember, though, that the actual marketplace is not a zero-sum game. Both parties gain from their transaction, or they wouldn’t enter into it. If they would agree without an external incentive, the incentive is unnecessary. If they would not agree without an incentive, the incentive skews the market away from its optimal point. Buyers have a required range of acceptable terms and sellers have a required range of acceptable terms. If the two do not overlap, that is not a failure of the market. The market is working as expected.
The housing market needs to stabilize. Unfortunately for me it will stabilize below what I owe. However, I want that to happen sooner rather than later because that is better for me, as it would be for any homeowner, whatever their equity status. More information is better than less information. But the market will not stabilize correctly, or as quickly, as long as Congress forgets that its job description does not include “Do something”.