Builders Facing Facts: No Congressional Bail-Out

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AP

Yesterday I wrote about the rather uncomfortable situation of hundreds of home builderson Capitol Hill, asking lawmakers for help, after their association had brashly cut off Congressional contributions.

I was so consumed with the socio-political aspects of it all that I never did get down to the business of the day, which was essentially the builders changing their tune on demands.

Up until yesterday, the builders’ number one priority appeared to be a tax provision that would allow them to carry back net operating losses (NOLs) to profitable years. This could translate into serious cash coming back their way (I know I don’t have to tell you all about the recent red ink on the builders' income statements).

The provision is highly controversial and was actually stripped out of the Economic Stimulus Package that passed earlier this year. It did, however, make its way back into the recently-passed Senate Foreclosure Prevention Act of 2008.

Critics were quick to label the bill a big time bailout for builders--primarily because of that very NOL provision. And since this contentious item hasn't found its way into legislation over on the House side, its future is tenuous at best.

Well now the builders are changing their tune, or, so they say. Their “focus,” now, is away from the NOL provision and toward a tax break for home buyers. “We believe that the tax credit version in the House stimulus package would indeed stimulate the economy much more directly, much more rapidly and much more stronger than the Senate NOL provision,” National Association of Home Builders Chairman Jerry Howard told me yesterday.

I was a little surprised. Yes, helping people buy new homes does directly benefit the builders, helps them with the inventories, etc., but it’s clearly not the direct, big-ticket cash flow result that the NOL tax break would deliver.

So I called some folks in the industry. Some big folks. The word I got, way, way on Deep Throat of course, is that they all realize the political pendulum has swung away from the tax break, i.e. the direct builder bailout and toward a more consumer-friendly provision: like the tax break for home buyers.

The “moral hazard” argument--that rewarding big builders with a big bailout after they overbuilt and overstretched during boom times is somehow not just fiscally but morally wrong--appears to be gaining steam.

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