Green Taxi

The government is paying 10% of your purchase, up to $8000 max, to any first time home buyer with an income of less than $75k.  It will end on December 1, 2009.

So far, this year 1.9 million home purchases have qualified for this tax credit.  1.9 million x $8000 = $15 billion.  So, the program cost the government $15 billion.

Here’s the problem.  So far it is estimated to have created an additional 350,000 additional sales.  In other words, the other 1.55 million sales would have happened anyway.  So, $15 billion / 350,000 = $43,000.  So, it actually cost the government $43,000 for each additional buyer.  With the median home price in the nation being roughly $180,000 this year, the government is paying for almost 24% of every additional home being purchased through this program.  That seems a bit much, to me.

I do like the “more effective tax credit” as offered up by CalculatedRisk.com:

The real problem is the number of households, not home sales. Many people have doubled up during the recession with friends and family, and will probably be looking to rent or buy once they get back on their feet. An incentive for new household formation (for people that were part of another household for the last year or two) would be much less expensive, would be more targeted (recipients would have to show they were part of another household) and would reduce the excess inventory of all housing units.

Does anyone see a trend here?  I wrote about a similar problem with the Cash for Clunkers deal.  We are subsidizing sales that would have happened anyway.  We need to find a more effective way to help out those truly in need and boost extra sales, rather than just paying for purchases that were going to be made already.

*image source: remax-huntsville-tx.com

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