Below and attached is information about state legislation unveiled today to extend the $10,000 new home tax credit. This legislation will be discussed on the 10 a.m. conference call today with the three legislative authors (Senator Ron Calderon, Assemblymembers Anna Caballero and Jose Solorio) and homebuilder representatives. The dial in number for media only is (866) 802-4290, Code: 1361328. If you should have any questions, please call (916) 443-0872 or respond to this email.
$10,000 California New Home Tax Credit Is Working.
Additional Funding Will Keep the Positive Momentum Going
As part of the February state budget, California Legislators and Governor Schwarzenegger enacted a $10,000 state tax credit for individuals who purchase a new, previously unoccupied home (5% of the purchase price of the new home, up to $10,000). $100 million was allocated for the tax credit which took effect on March 1, 2009. More than half of the credit is spoken for just two months into what was supposed to be a 12-month program. At this pace, it’s expected the tax credit will run out in early summer, stalling the increased activity seen in the new home sector so far. Lawmakers should keep the positive momentum going.
New Legislation Will Continue The Positive Economic Momentum
CBIA is sponsoring two identical bills, AB 765 (Caballero and Solorio) and a companion senate bill by Senator Ron Calderon which provide an additional $200 million for the tax credit program. The bills also make a change to the way the tax credit is currently allocated by allowing the credit to be “reserved” when homebuyers sign a contract to build a new home, not upon close of escrow which is currently how the program works. This change will further stimulate new home construction, ensuring those waiting for their house to be built won’t lose out if their house is not finished and they can’t close escrow before the March 1, 2010 deadline.
The tax credit has already proven successful in accomplishing these objectives:
1) Stimulating new home purchases. According to the Franchise Tax Board, as of May 8, just two months into what was supposed to be a 12-month program, more than 5,000 consumers have put in applications for the tax credit -- using up more than half the available funds. At this pace, the fund will be used up by early summer.
2) Clearing inventory and stimulating new construction. With consumers back in the market, previously idle homebuilders are now starting to pull new construction permits. According to the Construction Industry Research Board, 3,317 permits were pulled in California in March, up 39 percent from February. While nowhere near construction levels experienced during a healthy economy, the uptick in permits is encouraging.
The Tax Credit Pays for Itself.
Construction is the backbone of the economy. Every 1,000 homes built creates as many as 3,000 new jobs. New homes produce a net fiscal gain for state coffers. In fact, each $10,000 tax credit nets $6,000 in additional state revenues.
The Goal: Get the Housing Sector Moving Again.
Slumping new home production has been steadily killing jobs for the last two years. And these aren’t just construction jobs – they’re truckers; cabinet makers; furniture manufacturers; building suppliers; appliance distributors; utility workers; lenders; accountants; insurers; machinists; retail sales workers; food and beverage workers; warehouse and storage managers; and many more.
The collapse of California’s housing sector is one of the prime causes of our state’s economic woes. Construction of new homes decreased from 208,000 housing starts in 2005 to approximately 66,000 in 2008 – a 68% decrease. The decline in new home construction has resulted in the loss of $46 billion in economic output for California from 2005-2009 and more than 300,000 jobs lost in housing and related sectors.
· The state tax credit is available from March 1, 2009 – March 1, 2010, as long as funds are available. As of May 6, $54.9 million has been allocated out of the $100 million available in the program.
· These homebuyers can apply the $10,000 tax credit to their state income tax returns over three successive years ($3,333 each year), beginning with tax year 2009.
· The homebuilder must certify to the state that the home has never been occupied.
· The homebuyer must certify that they will occupy the home as their principal residence for at least two years following the purchase.
· The state Franchise Tax Board is the state agency responsible for administering the tax-credit. They have set up a webpage detailing the program http://www.ftb.ca.gov/individuals/New_Home_Credit.shtml
A similar tax credit worked before. In 1975 during a similar economic slump, housing markets turned cold and new home construction had ground to a halt.
· Congress enacted a tax credit (5% of home value, capped at $2,000) for the purchase of new homes.
· Home purchases increased 25% in the first year. New housing starts doubled in two years.
· It wasn’t the size of the credit that moved people. It was the demand for a limited benefit and the signal that now was the time to reenter the market.
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