Cato Scholar Comments on Senate Housing Bill

Friday, April 11, 2008

William A. Niskanen, chairmanwniskan@cato.org:

The Senate has again demonstrated that its guiding principle is "Don't just sit there. Do something really dumb in response to the current perceived crisis." This week's example is the Foreclosure Prevention Act, which passed the Senate by a vote of 84 to 12. One provision of this act is a temporary $7,000 tax credit for buyers of foreclosed properties, the primary benefits of which would accrue to those grieving bankers who made bad loans. Another provision is a temporary tax deduction worth up to $1,000 for families who pay property taxes, the primary beneficiaries of which would be high-income home owners. The most expensive provision is a three-year tax break for homebuilders, which would increase the supply of unsold homes and delay the recovery of housing prices.

Other provisions include increasing the size of mortgages that the FHA can insure to $550,000 in the most expensive housing markets, providing $4 billion for states and cities to buy vacant foreclosed properties, and, of course, $150 million to provide counseling for those whose homes face foreclosure. One wholly unrelated provision to add another $6 billion of tax breaks to producers of renewable energy passed minutes before the final vote.

The Senate has long had a reputation for posturing rather than thinking, but this bill wins the posturing prize – for the moment.

Upcoming Studies