Everyone knows that housing was the epicenter of the previous recession and that it is the biggest drag on the recovery. President Barack Obama wants to help by allowing homeowners to refinance their mortgages at record low interest rates even if the values of their homes have fallen below the amounts they owe.
The majority of the FOMC wants to help too. That’s why they voted to implement Operation Twist at their meeting on September 20-21, despite the objections of three cold-hearted dissenters. Last week and early this week, three of the do-gooders on the FOMC said they are ready to do more good and are considering a third round of quantitative easing that would include purchasing mortgage-backed securities again.
I don’t understand why no one in Washington is pushing for more targeted policies that would simply reduce the huge overhang of unsold homes. Doing so would take the downward pressure off of home prices. Actually, it should boost home prices by convincing would-be homebuyers to stop waiting for better deals and jump in and buy a house.
That’s the objective of the Homestead Act that Carl Goldsmith and I proposed this past summer. It would provide a matching down payment subsidy of up to $20,000 for anyone purchasing a home as their principal residence for two million houses. It would provide tax-free rental income for 10 years to anyone who purchases a house to rent for another one million houses. That would eliminate the current overhang of unsold homes completely.
Carl and I reached out to various political leaders in Washington on both sides of the aisle. Congressman Gary Ackerman liked the idea well enough to instruct his staff to work on a bill. The problem is that our plan would lower the corporate tax rate on repatriated earnings to 10%, using the proceeds to pay for the subsidy. The Congressional Budget Office scores these tax revenues as though they will be raised at the 35% tax rate even though such a high rate has been a major obstacle for such repatriation. So, we’ve hit a road block, though we are still pushing for the plan as best we can.