Cost Concerns Surface Over Home-Buyer Credit By John D. McKinnon Wall Street Journal 10-15-2009

Cost Concerns Surface Over Home-Buyer Credit
By John D. McKinnon
The Wall Street Journal
October 15, 2009

Analysts and lawmakers are voicing concerns about the cost and usefulness of the tax credit for first-time home buyers, a piece of federal housing-market aid that Congress is considering extending or even expanding.

The measure, adopted in the February economic-stimulus package, gives first-time home buyers an $8,000 tax credit. It was intended to give a jolt to the moribund real-estate market, at least through its scheduled expiration in November. Some analysts and many in the housing market call it a vital prop.

A number of House Democrats, however, are expressing reservations about a big extension or expansion of the credit, particularly one that isn't offset with tax increases or spending cuts.

House Majority Leader Steny Hoyer (D., Md.) favors only a one-month extension for now, said his spokeswoman, and wants Congress to offset any new cost.

"I don't think there's a majority in Congress ready to sign onto a very large unpaid-for extension or expansion," said Rep. Earl Pomeroy (D., N.D.), an influential member of the House Ways and Means Committee.

Some more-liberal Democrats, meanwhile, worry about expanding the credit beyond first-time home buyers. Ways and Means Chairman Charles Rangel (D., N.Y.), for instance, says he favors extending it but doesn't see the need to expand it.

As a result of the concerns, "I'm not as optimistic about expansion as I am about extension, but I certainly haven't given up on it either," said Jerry Howard, president of the National Association of Home Builders.

Leading proponents of the credit would like to extend it at least to next summer, and make it available to all home buyers. They also want to raise the income limits to $150,000 for an individual or $300,000 for a couple. That would cost about $16.7 billion. Currently, the credit phases out for individuals earning more than $75,000 and married couples earning more than $150,000.

To keep the credit alive, some lawmakers are considering ways to offset its cost, for instance, by taking back unspent funds from the $787 billion stimulus bill, said Sen. Johnny Isakson (R., Ga.).

To persuade Congress to reallocate stimulus funds, supporters will have to show that the home-buyer credit would generate more jobs than the stimulus bill would, Mr. Pomeroy said.

Ted Gayer, a scholar at the liberal Brookings Institution, argued in a recent paper that the credit costs the government about $43,000 for each additional home sale it produces. That is because most of the two million or so home buyers expected to claim the credit would have bought a house anyway. Only about 350,000 were additional buyers. Expanding the credit to make all home buyers potentially eligible would swell the government's cost per additional home sale to more than $250,000, said Mr. Gayer, co-director of economic studies at Brookings.

Economists at the National Association of Realtors said they don't disagree with Mr. Gayer's analysis of the existing credit's cost to the government. But they said he plays down the impact the program is having in supporting home prices and related expenditures.