October 21, 2009
The Wall Street Journal reports that the IRS is investigating 100,000 “suspicious” tax returns over possibly fraudulent claims of home buyer tax credits. Included in the economic stimulus package in February, the $8,000 tax credits were set to expire at the end of November, but the housing lobby is pressing Congress for an extension.
From the Journal:
A spokesman for the National Association of Realtors, Lucien Salvant, said, “Any time there is a lot of money around, there is going to be people attracted to it with evil intent.” Housing-industry officials recently have stepped up their lobbying for an extension of the credit. In a letter to the Obama administration on Monday, the National Association of Realtors, the National Association of Home Builders and the Mortgage Bankers Association called for a 12-month extension of the credit. They also asked that the tax break be extended to all home buyers – not just first-time purchasers – and noted that they were urging Congress to expand its value…Mr. Salvant said the industry groups weren’t suggesting any changes to the credit policy aimed at diminishing possible fraud.
What a surprise! Fraudulent or not, a sale is a sale for the National Association of Realtors, so they see no need to make changes to this federal gravy train.
The housing bubble inflated and burst in part because of federal policies that were directly influenced by the powerful housing lobby. But that bubble having burst, and the good times with it, the housing lobby is now desperate to get their chief benefactor, Uncle Sam, to continue propping up their financial bottom lines.
Two recent Cato essays on the subject have pointed out that government manipulation of the housing markets have caused more harm than good. In an essay on “Housing Finance and the 2008 Financial Crisis,” Prof. Lawrence H. White concludes:
The housing bubble and its aftermath arose from market distortions created by the Federal Reserve, the government backing of Fannie Mae and Freddie Mac, and the Department of Housing and Urban Development and its Federal Housing Administration…We need to identify and undo policies that distort housing and financial markets, and dismantle failed agencies and departments, such as HUD, whose missions require them to distort markets.
The second essay, which discusses HUD scandals over the past three decades, draws the connection between the department’s corrupted leadership and the housing meltdown:
Federal housing policies illustrate some broader realities of federal intervention. When making decisions, policymakers usually have political and self-interested ends in mind, not the broad general interest of the public. Also, lofty interventionist visions—such as using the government to boost home ownership—often fail because of the imbalances they create in private markets. Housing was traditionally a private and local concern without federal involvement. The scandals and policy errors discussed here provide good reasons to start dismantling HUD and ending the housing subsidies that have caused so much damage.
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