Housing Can Lead the Way to Recovery...Again

I have worked in the housing industry for more than twenty years. My company is in Chicago where we are known as "The American Dream Builder". We have repeatedly won customer satisfaction awards from JD Power & Associates and others. We are highly respected both within and outside the homebuilding industry.

Over the past two years I have watched our company shrink from over 250 full-time employees to less than fifty. I have seen competitors who were once strong and vibrant...whither away...taking good people with them. Our neighborhoods stand half completed and our homeowners are suffering in a market where their new homes are worth as much as 20% less than what they paid for them a few years ago.

The collapse of the housing market has been at the center of our current economic crisis. While it is a matter of conjecture as to what caused the collapse, it cannot be argued that housing must be stabilized before (or while) we address the systematic issues that caused such a massive failure.

Our government does not serve us well by ignoring the economic impact that housing and homebuilding have on our economy. According to a report by the Sacramento Regional Research Institute (SRRI) in 2007, new housing construction contributed nearly $40 billion a year to the state of California’s economy and it supported in excess of a quarter million jobs. As impressive as those numbers are…they are nearly 40% less than those measured in 2005.

When related activities were included into the equation, new home construction generated over $350 billion in economic output, supported approximately 1.2 million jobs and was the single largest industry in California accounting for 11 percent of all economic activity.

While this study deals only with our largest state economy, one can imagine that the impact is proportional throughout the United States. This study only measures new construction and does not measure other housing related industries that are affected by the collapsed market.

It can be argued that no recovery will be possible without a housing solution. The home builders are proposing a package at www.fixhousingfirst.com . While I believe there are worthwhile ideas presented in that proposal I do not believe it is going to aid in repairing the systemic issues that led us into the over-supply that proved to be a housing bubble. We need to stimulate the market while not creating an incentive to fuel speculative building. We need to bolster a sagging market without creating a reward for risky business practices. Housing must be fixed if we are to create jobs, preserve household financial stability, and create a better economic future for our country. The old economic aphorism…Housing leads the economy to recovery…may be proven true again.

My suggestions are simple and are a hybrid of several policy ideas being floated around right now. My proposal will focus on:

• Saving homeowners from foreclosure.
• Stimulating the housing market so as to decrease existing inventory.
• Rewarding “Green Building” and sustainability from both the producer and the consumer side.
• Putting skilled workers to work on “Green” initiatives that will create employment now and energy efficiency for years to come.


Number One:
I suggest that the Housing Stimulus bill of 2008 needs to be revised in order to address the inadequacy of the $7500 first time buyer tax credit. This credit should be increased to $10,000 and not paid back annually. The $7500 credit was inadequate to stimulate first time buyer activity and the annual repayment actually became a disincentive for many potential buyers.

Instead the repayment should be required when the purchaser sells the home or transfers title. This mechanism already exists in the current bill. It should be the solitary means for recapture. This would prove to be a disincentive to “flipping” a property while mitigating the impact on buyers who are looking to settle into a neighborhood for the long term.

This action alone would greatly improve the efficacy of the Housing Stimulus bill already approved by Congress. I would go one step further by extending a $5000 tax credit to all purchasers using the same repayment proposal. This change would have the benefit of allowing a liquidity cushion for homebuyers who have become too accustomed to HELOC’s and Home Equity Loans as a means for furnishing their home or paying for unexpected emergencies. The government would simply issue the equivalency of a HELOC or Home Equity Loan and it would be repaid when the property is sold.

I would also monetize the tax credits. I would put that money directly into the purchasers account at closing. This would have the greatest single impact on driving demand. This immediate stimulus would certainly be felt on Main Street and would have a far greater impact than mailing stimulus checks to households who are inclined not to spend them.

Lastly, I would make these credits available for homes that are currently built. I would not allow these credits to directly fuel a new housing boom. I would use this stimulus to whittle away the existing inventory. Homes with a certificate of occupancy dated no later than April 1, 2009 could qualify for this program. Reducing the existing housing stock to a more manageable level would have the greatest single impact on future housing growth.

These revisions to the existing Housing Stimulus Bill would certainly improve its impact and get stimulus directly into the economy while strengthening the housing market almost immediately. It would also focus the stimulus on decreasing housing inventory which would prove to stabilize neighborhoods and likely reduce the pressure of households on the brink of foreclosure.


Number Two:
I would provide stronger incentives for “Green Building” practices for new home construction moving forward. LEED certification is one metric which could be adapted for evaluation the energy efficiency of a new building. Energy Star or NAHB Certified Green are two more means of measuring “Green Building”.

As we emerge from this housing collapse and start building homes again we should take this opportunity to transform the way we build our homes. The homes built today are 30% more efficient than homes built 30 years ago. We could increase the average efficiency of a new home by 50% more by simply requiring certification and rewarding compliance.

A federal tax credit of $2000 is already available to home builders who build homes (including both site-built and manufactured homes) projected to save at least 50% of the heating and cooling energy of a comparable home that meets the standards of the 2003 International Energy Conservation Code, including supplements. A $1000 credit is available to manufactured home producers for homes that save 30% or that qualify for the federal Energy Star Homes program. These credits are already available for buildings or systems placed into service from January 1, 2006, through December 31, 2009.

I propose that we need to increase this tax credit and extend it through 2011. We need to increase the amount of the credit to help offset some of the cost associated with greater energy efficiency. In a healthy market these costs could be passed on to the consumer more directly but today the costs would simply make high efficiency a costly choice for builders. Without greater support, more costly energy efficient home building would likely be abandoned as builders struggle to reduce costs in order to compete.

The federal tax credit should be increased to $5000 for two years and then phased out over three more years. This would allow enough time for stabilization in the housing market and allow for greater access to the technologies and products that will create sustainable energy efficient building practices. These green building materials, technologies and products will also add to the green industry demand of the future.

This stimulus would be aligned with President-Elect Obama’s stated policy to put people to work and to increase our nation’s energy independence. It would create green jobs and it would increase the demand for green technology. It would decrease our energy consumption today and for the future. It would revolutionize the way we build homes and it would be the new American Green Dream.

Number Three:
I would improve the implementation of the “New Hope for Homeowner’s” program already available through the FHA. I would untangle the process and make the application and acceptance process more streamlined. This program has real merit and thus far it has been underutilized. This program, in conjunction, with the initiatives outlined earlier should stem the tide of foreclosure.

One possible modification would include Governmental approval of revisions to appraisal rules for refinancing. It seems fairly simple to allow refinancing to homeowners who are in trouble. One obstacle is the declining market status for appraising home values. A homeowner who purchased with 5% down three years ago would certainly have a negative equity position in most markets today. I propose an allowance to give owner occupied properties the ability to refinance to 110% LTV. at 30 year fixed rates equal to the prime rate or 3.99% whichever is less. (Note: The Treasury Department is already considering an option to create a new source for funding Fannie & Freddie loans at 4.5% using a Treasury Bond offering to create the funding…great move!) I would treat this as a “Rate Buy Down” and I would have the IRS recapture up to $10,000 from the proceeds of any future sale as compensation for this rate reduction.

This would offer immediate relief for homeowners in trouble. It would also allow for a recapture of tax payer funds.

Number Four:
I would invite home builders and remodeling contractors to work as energy efficiency contractors on public housing, public buildings, foreclosed properties, schools, libraries and hospitals. Any stimulus package will need to have employment opportunities and sustainable energy policy at the forefront.

The housing industry has seen employment drop by more than 50 percent in certain regions. This underutilized capacity could be part of a private sector/public sector partnership to improve energy efficiency in public spaces. This partnership could stabilize a very vulnerable industry in our economy while helping to improve our energy independence as move to a stronger future.

These programs would work best through a grant program that focuses on using the private sector to keep people working and viable business afloat while the greater economy becomes stronger.

My proposals are not revolutionary. They are pragmatic. The government cannot solve the problems but they should stimulate the market and allow it to heal itself. The proposals do not create future problems while addressing the past problems. Housing is likely where this crisis began and housing will have to be healed in order to cure the systemic problems our economy now faces.

I would estimate that these changes alone would halt the quarterly reduction in construction payrolls. Over time these changes would likely result in at least a few hundred thousand new jobs at the very least. Most importantly we could stabilize this critical segment of our national economy and the single largest source of personal wealth in our economy. I have confidence that our government will act swiftly, decisively and effectively. We have new leadership and a mandate for decisive action. We are anxious to get back to work.