Fix The Housing Market with A Tobin Tax and Two Incentives
- Posted by scheplick
- on July 11th, 2012
A guest post from a loyal student reader of ours who provides three interesting, non-conventional policies that will fix the housing market. The main argument: there is too much supply and not enough demand, and here is how we change that.
Problem One: The Housing Crisis
For the last 4 years a low demand, and inability to pay mortgages has caused the price of homes to plummet, and banks to take massive losses. This has worn down our economy, and made the price of our houses the single most important metric behind our economy’s success. A large portion of bank assets are in mortgage backed securities, and many people borrow and measure their net worth against their house’s equity. As home prices waver, so does lending, borrowing, and spending. So how do we increase the price of our houses? The answer is in Economics 101: Shrink the supply.
We have an over supply of houses. There are less buyers than sellers, and less renters than homes to be rented. We’ve built roughly 25 million new homes over the last twenty years while simultaneously adding 7 million more vacancies. Does this make any sense? Economics 101 tells us that when supply exceeds demand price will shift downward. Vacant homes and old empty developments should be torn down to fix this disequilibrium. Our focus should shift from building new homes to remodeling and refurbishing existing homes that are occupied. The idea being to decrease supply with the intention of increasing price.
Here are three economic policies to achieve this:
Step 1: Implement a Tobin Tax against new home builders. If you are going to build a new home, you will be taxed. The idea here is to curb the irrational exuberance that exists in the residential development industry. Will these people ever give up? I am looking at you $JOE.
Step 2: Incentives for scrappers: Subsidies and tax credits to businesses that tear down and recycle vacant and worn down homes and developments. Scrap them for their material and sell it. Just get the house off the market.
Step 3: Incentives for remodelers and refurbishments. Tax credits for remodeling and refurbishments done on occupied homes. Get a tax credit to fix your leaky roof, and increase your home’s value.
This process is much like the Cash For Clunkers program that was implemented in 2009. Cash for Clunkers gave consumers a tax credit if they exchanged their old car for a new car. In exchange, consumers got a more efficient car, and the auto industry was given more demand for new cars. It was a brilliant little trick to keep the auto industry afloat. It is time to implement a similar trick for the housing industry. So there you have it folks. A Tobin Tax and a few incentives to flip the housing market in our favor. Leave comments and suggestions in the section below. Part 2, which will be on student loans, will come in the near future.
Total Housing Inventory: http://www.census.gov/compendia/statab/2012/tables/12s0982.pdf
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