Builders slam stimulus plan

Homebuilders gathering in Orlando this week for the annual Int'l Builders Show have been faulting the stimulus plan recently signed by President Bush:

The National Association of Home Builders stepped up its attack on the $168 billion economic-stimulus package that President Bush signed into law on Wednesday, calling it too weak to help the ailing housing market...

The trade association's leaders said they are heading back to Capitol Hill in an attempt to encourage Congress to draw up more stimulus measures such as tax breaks for builders and tax credits for home buyers. Buyer tax credits, they said, would help to ease one of the biggest problems weighing over the housing sector: a huge inventory of unsold homes.

Such tax credits were enacted by the Ford Administration to help clear a glut of unsold new homes amid a recession in 1975. Those credits were worth 5% of a new home's value, up to $2,000. The tax credits would apply to home buyers who bought from a home builder's supply of completed or partially-built homes.

David Seiders, the builders association's chief economist, said the tax credits helped clear a "good deal of the inventory" by the end of 1975. Today, those credits could be valued as much as $10,000 a taxpayer, said Mr. Seiders. The builders are also proposing tax credits for first-time home buyers that could be applied to both new and used homes. "The credits could be a powerful stimulus to get people buying again," he said.

The builders also want to be able to apply their current losses against taxes paid on profits in the previous five years, as opposed to the current two-year period. The measure had been part of an earlier stimulus bill proposed by the House but wasn't included in the final plan that went to the White House. Critics said the measure would have cost too much.

One reason builders aren't getting the love may be the widely held perception that they were part of the problems that have led to the bust:

Builders may have an uphill battle in Washington. The industry reaped large profits during the boom and played a big role in the current housing malaise by selling to speculators and buyers with subprime credit and contributing to massive price run-ups.

Um, yeah -- but so did the commercial and investment banks that packaged and sold mortgage securities -- some of whom were betting against such securities by shorting stocks of sub-prime lenders and builders at the same time, and are now begging the federal government to bail them out. Why should builders be treated differently?

What's really at risk here is the failure of smaller and private homebuilders, which would lead to further industry consolidation. Consolidation in this industry will mean less choice and even more of the same monotonous, salmon-colored boxes instead of a more interesting mix of styles and architecture:

"This is the worst market that anyone has seen, probably ever," said Norman Finkelstein, president of Norwood Cos., based in Farmington Hills, Mich., which has sold one home in the past six months. He used to average 70 to 80 homes a year.

For some builders who are running out of cash and are in danger of defaulting on construction and land loans, the additional stimulus may come too late. "There are 50- and 60-year-old companies that are closing their doors and probably won't reopen. If that happens, the public is going to suffer," said Mr. Finkelstein.

Politically speaking, builders tend to be very conservative -- certainly above and beyond the 55% of donations that the NAHB has recently directed towards the Republican party (I'm sure the 45% for the Democrats was merely the hedging of political bets). So what's the lesson here for builders? Don't assume that a party that has been able to count on your industry for decades will be there when the chips are down. And in the future, think for the long rather than the short term and vote against incompetence whenever it's ridiculously obvious. Because eventually political ineptness on such a grand scale touches everyone.