Today, Peter Orszag, the new director of the Office of Management and Budget, appeared on MSNBC to discuss a provision in the stimulus package — proposed by Senate Republicans and supported by some Democrats — that would give a $15,000 tax credit to home-buyers. Orszag said that if he “wanted to get wonky” then he would argue that the credit needs to be targeted better:
If I wanted to get wonky, I would say it’s better targeted when it’s for first time home-buyers. If it’s for all home-buyers, you’re both inducing new sales, but then you’re creating — when someone already owns a house, they’re selling a house and then buying one. That doesn’t do as much for net demand for housing as inducing more first-time home-buyers would do.
At the end of Orszag’s answer, MSNBC’s anchor announced that “wonk is welcome here!” For obvious reasons, we wholeheartedly support that sentiment.
Orszag’s point about targeting, though, is very important. While his suggested target for the credit is a good start, it could go a step further and be targeted only to first time home-buyers who are buying an already existing home. As Matthew Yglesias noted, falling real estate prices have “everything to do with the fact that we’ve built too many buildings.” If the home-buyer credit leads to a reinvigorated construction boom, while finished homes continue to sit empty, then it won’t be increasing demand in a way that’s productive.
Ultimately, this is not a great tax credit, as it is not likely to incentivize many people who weren’t planning on buying a home anyway. But if it’s to be included, it should be targeted at the “blight of empty, poorly maintained and often vandalized houses that sorely need new owners,” thus maximizing its effectiveness as economic stimulus.