N.C. homebuilders could get temporary tax relief

Raleigh, N.C. — A bill in the North Carolina Senate would provide homebuilders with temporary tax relief during the recession.

Last week, the state House approved the bill that would allow them to defer tax payments on any new houses for the next three years, or until they are sold. Homebuilders, however, would still be required to pay taxes on the land.

Once a house is sold, the homebuilder must pay back the taxes, plus interest. The cost would likely be passed on to the new homeowner.

"You've got a builder, and you have 20 houses you are trying to sell, you can be looking at a $500,000 tax bill, if you look at the whole package," said Tim Minton, director of the North Carolina Homebuilder's Association.

"It's a good thing, on the surface, to offer relief to builders, but there is a cost associated with it," Wake County Deputy Manager Joe Durham said.

The bill could cost Wake County an estimated $3.7 million in lost revenue next year – money that Durham said could go to schools, human services and other departments.

Builders see it differently.

"I don't see this as the builders getting a break," Minton said. "What I see this as is an opportunity for the builders to stay in business, so that they can continue to help build our tax base."

"If the builders go away, we're not going to have a tax base," he added.

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Keep in mind that, in the real estate developing and building business, the demand for the final product can change rather quickly. This is true regardless of the price range of homes being built, or single family vs multi family housing, or large commercial space vs flex/warehouse, etc. Yes, housing in the 150-250k range is in demand at the moment (heavily due to the 8k tax credit courtesy of Obama)while 2 years ago the hot range was 500-750k, at least in the Triangle. The time frame for creating product is usually much longer. When you look at a new 750k home that has sat unsold for a year, and you think it's all the builder's fault, remember that the genesis of that house might have been 4 years, from the time the developer first began the process of acquiring the land for development, until the builder finished the house. Alot can change in that time. A lot can change in 6 months.

luvbailey
June 30, 2009 3:39 p.m.

fatchance: I chose to simplify. I do not disagree that lending practices and buyers wanting more than they could afford was a drove the market. I deal with it every day and for the last 30 years.

Whatever you want to call it, any house built before a buyer is under contract is speculative and risky. It can't be done without a builder and banker getting ahead of themselves. I can see the need for any builder to have inventory, but the level and growth rate of the inventories was the result of bad business practices.

I just think the builders and construction lenders acting like they didn't see this coming is a crock. It was a big circle of greed. Bankers, Builders, Brokers, Bankers(again), Buyers, and now Bail-outers(you and me).

claytontarheel
June 30, 2009 3:15 p.m.

wildervb - "I spoke with a builder yesterday, he said the company he works for has dozens of 300k+ homes that they can't unload. They wish they had some 150k - 200k homes to sell, but they don't."

Exactly. And as horrible as it may be for the industry, the only way those are going to sell is reduce them to a price people can afford. If the government helps out the builders with these loans, these homes won't magically disappear. They will still be stuck with them. Then what? When this tax break runs out we have to re-up for the same reasons?

The market needs to fix this problem.

Not_So_Dumb
June 30, 2009 2:29 p.m.

I spoke with a builder yesterday, he said the company he works for has dozens of 300k+ homes that they can't unload. They wish they had some 150k - 200k homes to sell, but they don't.

They need to face reality, the reality that was suspended during the real estate boom. The fact is 300k is way beyond the price range that most middle class families can afford. Some of the towns around me only approved development with these high priced homes, maybe its time to re-visit the covenents of some of these developments to allow houses that are less than 2,000 sq feet be built again.

wildervb
June 30, 2009 2:17 p.m.

claytontarheel: Maybe you'd present a better argument if you understood what you were talking about. There are not 2 types of houses as you state...as speculative & custom. Spec houses are built with the hope of finding someone to buy it. Most people shopping for a new house look for completed houses that are nearly ready to move into. The opposite is a pre-sale, when a buyer sits down with the builder and they come up with a house that is to be built according to the buyers' wishes. This usually comes to be when the buyers see the quality & design of a speculative house, but want the house with some changes and on a different lot.

A custom house is one that is build with high quality materials and built to a higher standard. Conversely, there is a track-built house that is build with lower priced materials that are bought in bulk to use on many houses.

And, lack of regulation of construction lenders is not the problem, it's lack of regs in the consumer mortgage market.

fatchanceimwrong
June 30, 2009 1:39 p.m.