Title: 1975 Case Study Summary
In 1975, Congress passed a short-term $2,000 tax credit for all new homes ($12,000 adjusted for today’s median home prices) coupled with subsidized mortgage rates. The stimulus jump-started the depressed economy and the effects continued long after the measure expired.
The credit was aimed at reducing the substantial inventory of unsold homes, which was at near record highs. By the date the tax credit became effective (March 26, 1975), nearly 400,000 homes remained for sale. The large overhang of unsold homes stalled the economy. Working down the inventory was seen as a key to recovery.
Of the roughly 700,000 homes that could have qualified for the credit, nearly 400,000 single family homes were started and for sale in March 1975. Another 200,000 homes were under construction and built for the owner. Condos and manufactured housing could account for another 100,000 eligible units.
By the end of 1976, income tax return data suggest at least 75% of the eligible homes (535,000 taxpayers) received the credit. The credit clearly worked.
The benefits of the 1975 stimulus extended well beyond the tax credit’s effective period. At the onset of the tax credit in 1975, monthly housing starts were below one million units (after reaching levels of almost 2.5 million in 1972). But a year after enactment of the home buyer credit, in February 1976, the level of housing starts was nearly double then the prior year.
In 1975, a housing stimulus worked and rapidly improved the market and the economy in dramatic fashion. And it was not a short-term fix; improvement continued long after the stimulus expired.
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