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2014-H 7560: New Housing Bubble, Rhode Island Style?

Can anyone think of any recent economic problems that resulted from inducing people to build large amounts of housing that wasn't needed? Bueller? Bueller?

(Oh good, me neither).

Rep. Jacquard introduces bill to spur home building
            STATE HOUSE – Rep. Robert B. Jacquard (D-Dist. 17, Cranston) has introduced legislation that he believes can help spur home construction in Rhode Island, which he knows is “an important aspect of improving our state’s stagnant economy.”
            The bill, 2014-H 7560, offers some fee-cutting and tax-saving incentives to promote home construction. According to records kept by the Rhode Island Builders’ Association, sales of homes recorded a slight increase in 2013 compared to the year before. While those sales figures were up compared to the significantly lower numbers for the eight years previous, they have still not rebounded to the numbers of the boom sales years of 2005 and earlier.
            “Building homes, purchasing homes is a vital driver of a good economy,” said Representative Jacquard. “It creates jobs, and generates taxes. It means greater purchases of goods and other services. It means the fulfillment of the American Dream, and the greater stability of a community.”
            According to the Bipartisan Policy Center, the construction of new housing is an “integral component of the economy.” From 1980 to 2007, the center’s “Housing Impact on the Economy” report said, residential construction contributed on average 4.5 percent to the U.S. gross domestic product (GDP). During the boom years of 2004 to 206, it peaked at 6.3 percent of GDP. When the bubble began to burst in 2007, that plummeted to about 2.2 percent.
            The report also indicated that “new home construction is a major generator of American jobs,” with each new single-family home construction supporting 3.5 jobs and each new multi-family home building supporting 1.2 jobs.
            “Rhode Island government has been concentrating lately on enacting or revising laws to make the state a better place to run a business, and that’s a good thing,” said Representative Jacquard. “I think we should also offer encouragement to the home construction industry, because of the vial part it plays in the state’s economic health. I propose we do it with a few short-term monetary incentives that, while they will be a small drain on the state’s tax and fee intake, will mean a great deal more in the long term in regard to helping boost our economy.”
            The Jacquard bill proposes three amendments to the State Building Code:
            ** The permit fees assessed by each municipality would be reduced by 50 percent for a period of two years from the enactment of the legislation;
            ** There would be a 3.5 percent reduction in the sales tax imposed on lumber and building materials used in the construction of buildings or for making other improvements on land, for a two-year period following enactment;
            ** There would be a moratorium on the assessment and collection of impact fees currently established or proposed by cities and towns for new construction. The moratorium would be in place for a three-year period, beginning upon enactment.
            According to the National Association of Home Builders, the estimated one-year local impacts of building 100 single-family homes is $21.1 million in local income, $2.2 million in taxes and other revenue for local government and 324 local jobs. The local one-year impacts for construction of 100 rental apartments is $7.9 million in income, $827,000 in taxes and other revenue and 122 jobs. Even residential remodeling has a positive impact, with every $10 million spent on remodeling accounting for $6.9 million in income, $577,000 in taxes and other revenue and 78 jobs.
            “Houses build a life for a family, they build a community and they build the economy,” said Representative Jacquard. “I think we should enact laws to encourage this industry.”
            The Jacquard bill is before the House Committee on Finance. It is co-sponsored by Rep. William San Bento Jr. (D-Dist. 58, Pawtucket).

Temporarily lowering taxes on home building sounds suspiciously to me like trying to create a small-scale housing bubble. There are lots of policies we could change that would help to spur building in a better way. The biggest thing on my plate would be removing parking minimums statewide, so that developers can choose whether and how much parking to provide at a location, instead of being required to have it and having to tuck the price of it into housing. Parking minimums are essentially a tax on development to provide public parking. Another major fix would be making some drastic changes to spending policies on road infrastructure so that we don't induce sprawl away from town centers and cities, and can instead develop some infill. We've been reporting on the $46 Million boondoggle that RIDOT plans to add to Viaduct project--that money could definitely be better spent.

I'm very suspicious of anything that promises jobs as its raison d'etre. I like the rule of thumb that Rust Wire author and Streetsblog editor Angie Schmitt uses, which is that it would almost be impossible to imagine throwing around money through tax cuts or spending that wouldn't generate some kind of economic activity. The bigger question is, what kind? Why should a particular industry--in this case, home building--be favored over others? If there's a compelling public reason, then so be it. But "jobs" is not it.

I called Rep. Jacquard's office for comment, and no one I spoke to was authorized to speak on 2014-H7560. I certainly would welcome his comment, or the comment of supporters of this bill in the comments section, by Twitter at @transportpvd, or by email at transportprovidence@gmail.com.

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