In talking to real estate folks from around the country one of the common themes I have heard is that so many buyers are "sitting on the fence." They just don't know whether to get into the market now or not. Clearly, they lack sufficient incentive. (It wouldn't be surprising if this same lament is to be heard among stock brokers.) One thing, though, is for sure: there are trillions of dollars (that's trillions with a T, not billions with a B) sitting on the sidelines looking for a smart and profitable place to be. They are waiting for a sufficient incentive to move into this market or that.

It is a stated and worthy goal of the current administration to bring stability to the housing market. So far, however, the main focus of the administration's efforts has been on trying to keep things from getting worse by helping those who are in trouble. But that – shoring up at-risk consumers and their mortgage sources – doesn't provide a long term solution. What is needed is to get capable people back into the market. That is what will help everyone in the long run.

Recently, we discussed some of Congressman Ken Calvert's (R – CA.) thoughts about the need and ways to create demand in the housing market. Lord knows, there is plenty of supply. What will it take to get solid buyers off that fence?

One of the Congressman's suggestions – already discussed in this column – was to broaden the tax credits available to homebuyers. Rep. Calvert also discussed another incentive that government could provide: offer a moratorium on capital gains tax. Suppose, for example, that there would be no capital gains tax on the future sale of any residential property purchased between Jan. 1, 2009 and July 1, 2010. This could provide a powerful stimulus for purchasing such properties.

To be sure, it would not provide a great incentive for owner-occupant buyers. For them, a capital gains tax break is already in place. But it would mean a great deal to investors. And investors are – today – extremely important to any housing recovery.

Much has been made, by some, of recent dramatic year-to-year sales increases in California. It is certainly true in my home southern California market. But here's what else is true: most of those sales are occurring at the lower end of the price range, where "bargains" and bank-owned properties are to be found. Moreover, anecdotally to be sure, a substantial portion of the buyers are investors. How many more would there be if a capital gains moratorium were put in place? Probably, a lot.

As with the suggestion that tax credits be extended to all home buyers (not just those who qualify by an income and "first-time buyer" test), there will be those who would object. "The primary beneficiaries of a capital gains moratorium would be investors, not people in need." Again, the proper response is "SO WHAT?" If the aim is to increase sales from the bloated inventory -- thereby bringing stability to the market – who cares if the buyers are investors? Indeed, buying by investors will increase the stock of rental housing, thus bringing down the price of rents.

One positive aspect about proposals to stimulate the market by providing tax incentives is that they don't cost anything unless they work. To date, billions of dollars have already been shelled out without any clear evidence that the government "rescues" have had the desired effect. A moratorium on capital gains taxes wouldn't cost a penny up front. At most, the cost would be in unrealized tax revenue and only if the program worked and there were actual gains which weren't taxed. And there wouldn't be any bonuses.

Suppose a moratorium on capital gains generated an extra million sales in the housing market. And suppose that the average gain resulting from those sales turned out to be $200,000 per unit (a happy thought). If gains by then were taxed at 20%, the result would be $40 billion in unrealized tax revenue. Now that is indeed a tidy sum, but, again, it is chump change in comparison to what has already been spent. Moreover, because different investors would have different holding periods, the "loss" would occur over a period of years, not all at once.

Proposals like this have such obvious merit, one wonders why they don't get a decent hearing. The answer, I fear, is in the political importance of perception. "Forgiving capital gains is a ploy to help the wealthy; it does nothing for struggling middle-class homeowners." I would beg to differ. Nothing would help struggling homeowners more than stopping the free fall in prices by getting inventory sold and stabilizing the market.