"Thanks to a tax break proposed by President Bill Clinton and approved by Congress in 1997, he did not have to pay tax on most of that profit. It was a break that had not been available to generations of Americans before him. The benefits also did not apply to other investments, be they stocks, bonds or stakes in a small business. Those gains were all taxed at rates of up to 20 percent."
"The different tax treatments gave people a new incentive to plow ever more money into real estate, and they did so."
"By itself, the change in the tax law did not cause the housing bubble, economists say. Several other factors - a relaxation of lending standards, a failure by regulators to intervene, a sharp decline in interest rates and a collective belief that house prices could never fall - probably played larger roles."
"But many economists say that the law had a noticeable impact, allowing home sales to become tax-free windfalls. A recent study of the provision by an economist at the Federal Reserve suggests that the number of homes sold was almost 17 percent higher over the last decade than it would have been without the law."
Comments
Finally the Media Noticed
It's about time that the media caught on that the Clinton-era tax breaks played a major role in creating the illusory housing boom. Sadly, the real estate industry owns both political parties hook, line, and sinker, especially the Clintons. Isn't it time that we put an end to the tax policies that subsidize homeownership and result in higher prices (those wonderful itemized deductions we enjoy on our property tax and mortgage interest have served largely to artificially increase the price of housing by subsidizing our purchase of it).
The other side of the coin was the unrestricted condominium conversions that started in the late 1970s that wiped out so much of the housing affordable to households of modest incomes. The real estate industry achieved it's not so secret goal of reducing the supply of rental housing so much that it raised monthly rents to the same high level of monthly ownership costs.
Combine the manipulation of the multifamily housing market with the Clinton tax breaks for home ownership -- and you had a recipe for artificial massive inflation in housing costs in a bubble that eventually had to burst.
While the downturn is a very bad thing for millions of households in the short term, the decline in housing prices is actually a good thing for the economy in the long term. And we'd never have been in this boat were it not for our elected officials who readily do the bidding of the real estate lobby.
Daniel Lauber, AICP
Planner/Attorney
AICP President 2003-2005, 1992-1994
APA President 1985-1986
http://planningcommunications.com