A Modest Proposal (or, No Cost Help for Housing Market)

July 24th, 2010

Inspired by Housing market’s recovery stalls: End of popular credit, fears about economy undercut home sales (Washington Post 7/02/10), Existing-Home Sales Slow in June but Remain Above Year-Ago Levels (National Association of Realtors 7/22/10), and National housing slump hangs on: Panel offers rosier view of market in DC area (Washington Post 7/24/10). Here’s my modest proposal (in verse, then explained further below) on how to help the housing market at no net cost to the government or taxpayer.


The housing market is slowly improving.

After years of sluggishness, the market is moving.


The housing tax credit helped for a while

(If you bought and didn’t claim it, you can still refile).

But prices are still down, and could fall again,

And how would we avoid financial meltdown then?


Everyone’s complaining that Wall Street was bailed out

In their commercials and campaign flyers they’ve mailed out.

They say we should have let the banks go down the drain,

Even though that policy would have been insane.


Now, more help is needed to put the housing market back

On a more sustainable and healthy track.

But the housing tax credit was really expensive

And the country can’t afford, another one to give.


Wouldn’t it be great if someone could discover

An inexpensive way to help the market to recover?

Believe it or not, I think I have a way

For a cost of zero dollars to save the day.


Many people who moved when the housing fell

Knew that if they sold their old house, they wouldn’t do well.

So instead of selling their old house, they rented it out,

Waiting for a market turnabout.


My family is in this exact situation,

And there must be others like us throughout the nation.

We temporarily rented our old house, but now have to sell it,

Because the home sale tax exemption rules compel it.


As described in Publication 523,

Gain on sale of your home is only tax-free

If you’ve lived there for two of the last five years.

After that, the exemption disappears.


Thankfully, we’re still sitting on a gain

So I know we shouldn’t complain,

But the market is nowhere near what it was at its peak,

Which leaves us and many others potentially up the creek.


When people are forced to put their house up for sale

In order themselves of the exemption to avail,

It puts more houses on a saturated market:

Where the market is at risk of another drop, that could spark it.


Those extra houses coming up for sale

Could potentially the market’s recovery derail.

It makes more sense to let people keep renting,

Thus more downward pressure on the market preventing.


How can this problem be addressed?

By changing the tax-free exemption test.

Instead of 2 of the last 5 years, make it 6 of the last 10,

Which would give housing prices more time to recover again.


Or leave the test unchanged and say 2009-11 don’t count,

Which gives the market more time, the recession to surmount.

That would let people who wanted to withhold

The home from the market until current inventory is sold.


This proposal won’t cost the government a penny.

(Can other housing support measures claim that? Can any?)

The people who delay sale won’t pay more or less taxes,

They’ll just be free to wait for recovery if Congress the exemption rule relaxes.


If people are forced to sell, their exemption to preserve,

They’ll sell at a lower price, which the market will unnerve.

Their gain will be lower, but it will still be untaxed,

Because they their rental period already have maxed.


But if those sellers waited,

More potential government revenue is created.

Uncle Sam gets a cut of their continued rental income,

Or more if the market recovers robustly, and then some.


If price increases bump sellers over the $500K threshold,

Uncle Sam gets a piece of the extra profit, when the property is sold.

It’s win-win-win, since Uncle Sam, the sellers, and the country all benefit

(A brilliant idea, one has to admit).


We’re getting ready to sell now, so this change won’t help us,

But it’s definitely something the Congress should discuss.

It could be passed quickly on a bipartisan basis

(Far better than the current political stasis).


So lobbyists, staff, and policymakers,

Homeowners need someone to help them. Any takers?

Here’s something we can do that will help people, and cost nothing,

And that’s a lot better than doing nothing.


And please don’t to this proposal be adverse

Just because it’s written in verse.

***

The beauty of this proposal is not only that it is cost-free to the Treasury (and should even result in some additional tax revenue), but that It gives home sellers an option that they would otherwise not have: renting, or continuing to rent, until the market recovers, instead of being forced by the exemption rules to do something (here, selling into a depressed market) that is bad for both them and for the market as a whole. Current tax policy perversely requires this detrimental act, negatively impacting both the home seller, the housing market, the financial system (due to continued depressed property values that put mortgages at risk), and ultimately, the Treasury. By extending the home sale exemption (e.g., to 4 out of 7 years, or 6 out of 10 years, or excluding the recession years from the calculation, or something else along those lines), the home seller is able to do what is best both for him/herself and for the economy as a whole.

I’m not saying that this measure in and of itself will save the housing market, but it will help, and it has no downside. Sounds like a no-brainer to me.

So, what do you think? Please leave a comment below to let me know.

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One Response to “A Modest Proposal (or, No Cost Help for Housing Market)”

  1. Newsericks » Blog Archive » Arousing Housing Says:

    […] follow-up to A Modest Proposal, inspired by Home prices falling in 19 major US cities, with 4 now at lowest level in 11 years […]

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