The National Association of Home Builders is having trouble getting behind the President Bush's economic stimulus package.

Not just because the plan doesn't contain the home ownership tax credit the powerful 205,000-member trade group has long favored, or even because the NAHB believes, as others do, the proposal would knock the underpinnings out of the affordable end of the multi-family housing market.

No, the builders group is most concerned that the administration's stimulus package could eventually accomplish what it's chief economist, David Seiders, said has been goal of every Treasury Department he can remember, namely to drive capital out of the capital-dependent housing sector.

"It's clearly the objective of this administration. It's been the objective of every Treasury Secretary I've ever seen, and it's a threat," Seiders said at the NAHB's annual convention in Las Vegas last month. "It's always bad for us." The NAHB leadership doesn't doubt the President's plan to make all tax cuts enacted in 2001 effective and permanent right away and eliminate the double taxation of corporation income would strengthen economic growth, boost the job market.

Even the smaller-scale Democratic proposal, with its heavier short-term focus, would stimulate growth, they believe.

But they are worried that over the longer term, the plan would drive interest rates upward and, because of the lower marginal tax rates called for in the President's proposal, lessen the value of the tax deductions for mortgage interest and property taxes.

Higher mortgage rates and less valuable tax write-offs, of course, would cut off marginal home buyers and force repeat buyers to rethink a possible move.

NAHB leaders are even more concerned, though, that the new tax treatment of corporate income also could reduce corporate demand for low-income housing tax credits as well as market demand for tax-exempt bonds, weakening the two principal policy supports for the affordable rental housing market.

If that happens, they fret, the much coveted ownership tax credit, which is patterned after the highly successful LIHTC credit that has powered the apartment sector, will never get off the ground.

The builder lobby hasn't given up hope that the ownership tax credit will make it's way into the stimulus package. New NAHB President C. Kent Conine, a Texan who was appointed to the state housing finance agency by then Governor George W. Bush, said he has asked the White House to reconsider.

And why note? The credit "would provide a tremendous economic boost almost immediately," said Conine, who builds both houses and apartments in the Dallas area.

"It doesn't take long to build a single-family house. Some guys in my market can have them up in as little as 60-70 days." The NAHB says that on an annualized basis, the tax credit would produce new 50,000 new and rehabilitated houses, contribute $2 billion of private equity investment, create 122,000 jobs and generate $4 billion in wages and $2 billion in taxes and other fees.

"The Treasury Department estimates the cost of the program is $2.4 billion over five years," said outgoing NAHB President Gary Garczynski. "That's a lot of bang for the buck." Maybe so. But Sec. Mel Martinez of the Department of Housing and Urban Development told the convention there's not much of a chance the credit will become part of the stimulus package because housing, which has been the beacon of an otherwise sluggish economy, doesn't need any help.

However, the housing secretary did say the tax credit would once again be part of the President's budget.

"The stimulus package was designed to accomplish certain goals," Sec. Martinez said. "But that's not to say the President and I are not committed to the tax credit for home ownership. It will be part of the budget and we hope it will be enacted this year." Beyond the ownership tax credit, though, the NAHB is uneasy about the long-term impacts of the stimulus package.

"The short and long-term impacts of the plan on the housing sector certainly could be a mixed bag," Seiders said in a presentation he originally titled "The Promise of Fiscal Stimulus" but then amended to "The Promise or Threat of Fiscal Stimulus." On the upside: A stronger economy.

But on the downside: The new tax treatment of corporate income could reduce corporate demand for low-income housing tax credits as well as market demand for tax-exempt bonds, possibly weakening the two principal policy supports to the affordable rental market.

"It's crystal clear to us that it will halt the purchase of tax credits of any kind," said Daniel Markson of Royal Castle Builders, Miami, during a debate on a resolution pointing out the "unintended consequences" of the White House's tax package. "And when reaction comes, it will be very, very swift." Fred Griffin of Griffin & Associates in Madison, Miss., agreed. "It looks like it could decimate the market," he said. But perhaps even more worrisome, Seiders said, could be these fallouts: Higher interest rates, devaluation of the mortgage interest and property tax deductions via lower marginal tax rates, and reductions in the relative advantages of investment in owner-occupied housing over business fixed investment via the elimination of double taxation of corporate income.

"This is big stuff," Seiders warned. "If the Administration is successful, it would lead to a shift of capital out of housing and into equities, and that would put downward pressure on housing prices." "Given the importance that rising house values have had to the economy," the economist added, "I can't believe (the administration would) want to risk that."

Published: February 26, 2003

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