Thursday, June 14, 2012

Lenexa's New Penny Smart, Dollar Dumb Housing Plan


The Lenexa city council has been struggling to try and find ways to spur housing development in the city that has seen the median home prices fall by nearly $100k since 2009.  Their new plan appears to based on the same philosophy as Obama's jobs program.  The basic idea is that if they make it less expensive to do something, businesses will do it, but when that discount is barely two tenths of one percent they can't really expect businesses to be stirred towards investment.

Here is the new plan to decrease the cost of new construction permits in the hopes it will stimulate the housing market:

A $200,000 house has building permit fees of $795 plus the plan review of $159 for a total of $954. New fee: $500; savings: $454.
A $300,000 house has building permit fees of $995 plus the plan review of $199 for a total of $1,194. New fee: $500; savings: $694.
A $400,000 house has building permit fees of $1,195 plus the plan review of $235 for a total of $1,434. New fee: $500; savings: $934.
These new rates are only available to the first 200 permit requests made within the next 12 months.

I'm not one to complain about reducing taxes, and let's be honest government fee's are taxes, but if anyone on the city council thinks this plan will actual create new investment they are fooling themselves.  A business that would invest $200,000 it didn't plan on doing already, because it can now save $454 by doing so, is a business that is going to be going out of business sooner, rather than later.

3 comments:

smoore123 said...

I'm with you on the insignificance of this fee/tax cut on the builders’ overall decision-making process but this part confuses me.

Their new plan appears to based on the same philosophy as Obama's jobs program. The basic idea is that if they make it less expensive to do something, businesses will do it.

I’m going to apply my own understanding of your logic so please correct me where I’m wrong.

Is your point that Obama's jobs plan is too small and therefore employers didn't respond to the incentives sufficiently? Because it seems to me that many government actions can be viewed as affecting incentives and therefore make some desirable activity more or less expensive.

Don’t conservatives make the argument that regulatory burdens impose a cost on businesses so that it is more expensive for them to expand production or hire new workers? And that we could stimulate the economy by pulling back on regulations? Another example, a report you linked to the other day on the Regan tax cuts said that when you cut marginal tax rates people move income out of tax shelters which exposes the income to the lower rates of taxation and this creates a marginal increase in revenues.

I don’t think you would dispute the two policy positions I’ve mentioned, but based on your post here I think you are pointing out that policy actions that alter incentives have an impact that is attenuated by their size relative to all the factors involved. Therefore you would conclude that cutting taxes right now at their current low levels would have an insignificant effect compared to, say, the 1964 Kennedy-Johnson tax cut where the top marginal rate went from 90% down to 70%.

James said...

My point in referring to the Obama jobs plan was the so-called stimulus for hiring in the plan. The offer was a tax break for a couple thousand dollars to hire someone who will cots tens of thousands of dollars annually. It's just not logical. You can't one time stimulate peanuts in order to entice employers to hire.

Employers hire for one reason only, they need more labor to keep up with growing demand. The only way the government can really stimulate hiring in the private sector is reducing tax burden and barriers to entry so that businesses invest in new products and services which will result in new hiring.

The could be an argument that government contracts lead to hiring, but in most cases these are extremely wasteful uses of tax dollars. For example:

http://www.bbc.co.uk/news/uk-politics-18024447

http://www.wmc.org/issues/issues-policy/issue-areas/environment/insight-how-much-do-green-jobs-cost/

Anonymous said...

Tax cuts now won't have the same effect they did under Kennedy or Reagan because there is little left to cut. I suppose if we followed Ron Paul's advice, reduced government and made it run entirely off tariffs and fees, then we could eliminate the income tax and you'd see a big effect.

Also, when comparing the economy today to that under Kennedy or Reagan, one must factor in the demographic changes that have taken place. The aging of the population, and the replacement of the historic European stock with non-Europeans does not bode well for America's future. You have an increasing number of retirees and an unproductive underclass that lives off government largesse. Not exactly a good mix for an economic super power.