Extension to First Time Home buyer Tax Credit

Earlier this year, the US government introduced a tax credit of up to $8,000, available for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009. In the news today are reports of an extension to the policy through to June 30, 2010.

While the subject remains current in the news, I’d like to draw a comparison between the US first time home buyer scheme and Australia’s first home owners grant.

The most prominent difference between the two scheme’s are their method of payment. The US system provides a tax credit (the tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000), whereas the Australian system provides cash upfront ($7,000 on existing and $14,000 on new homes, typically transferred direct to the lender as a part-deposit). For many, affordability in housing is about the up-front cash you have available, particularly in Australia where stamp-duty and mortgage duty add significant costs to the purchase. US lenders are no longer advertising 95% and 100% loans, placing US residents in a near equal position to Australian’s. For me, the concept of a tax credit defeats the purpose of getting people into houses, however it ensures home buyers have sufficient money in the bank to weather a storm.

The US system provides an income limit of $75,000 for single home buyers and $150,000 for married taxpayers filing a joint return. The Australian system is eligible to anyone that can qualify for a loan. Yes, if you are earn $1,000,000 a year you still qualify. The Australian government have received backlash for making the grant available to high income earners. But I disagree with their critics. The Grant was devised to stimulate the construction and housing industry. Whether a low income or high income earner buys a house, money is still distributed throughout the industry. In-fact, for each house sale, pest inspectors, building inspectors, real estate agents, lawyers and accountants receive a piece of the pie. The US should consider whether they are targeting the housing industry, or providing for low income earners. I believe it’s the former.

The final point I would like to raise, and I should firstly point out that I think that both the Australian and US system have got it all wrong, is the limitation to first home buyers. Yes I know that the schemes are called the first time home buyer and the first home buyer, but what is their purpose here? Is it not to stimulate the housing industry and more loosely the economy? Why not introduce a refund or grant to investors or holiday house owners. It might need to be a smaller amount, but who cares? The purpose of the grant is to stimulate the housing economy and both governments should expand the grant and achieve the goal they set out to achieve. Why offer a grant that 70% of the population can’t afford to take up? It makes little sense to me.