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The Homebuyer Tax Credit: Another Government Boondoggle

by @ 9:19 am on April 27, 2010. Filed under Economics, Politics, Real Estate


The homebuyer tax credit is set to expire at the end of the week, and while it has clearly played a role in the uptick in home sales over the past few months, it’s also quite evident that it was an entirely inefficient use of the tax code:

Though the Treasury Department and the real estate industry have termed the program a success, helping 1.8 million people buy homes, many tax policy experts say it has been singularly cost-ineffective: most of the $12.6 billion in credits through end of February was collected by people who would have bought homes anyway or who in some cases were not even eligible.

The credit has caused a surge in sales and has been widely lauded for helping to stabilize prices. In places like Lafayette, Ind., where the number of homes sold in March was up 48 percent over last year, real estate agents say they have been inundated with buyers like James and Aubrey Green, students at Purdue University, who said the credit had persuaded them to jump into the market.

“We were happy in our apartment, but $8,000 was just too much to pass up,” said Mr. Green, 29, who shopped furiously with his wife for two month


For every home buyer like the Greens, real estate agents say there are at least three others who collected the credit even though they would have bought without it. That means for each new buyer who was truly lured into the market by the credit, the federal government paid more than $30,000.

In addition to legitimate buyers, tens of thousands of people who collected the credit were not qualified. An audit by the Treasury Department’s inspector general released last year found that hundreds of millions of dollars in credits went to people who had not yet bought homes or who were not first-time home buyers, as the program initially required.

Hundreds of others who received the credit were not old enough to sign a binding contract, the audit found, with some as young as 4 years old.

This shouldn’t come as a surprise considering that the first version of the tax credit, which only applied to first-time homebuyers, was estimated to have cost the taxpayers $ 43,000 per home sold.

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