STATEMENT
Of the Honorable Nydia M. Velazquez, Chairwoman
United States House of Representatives, Committee on Small Business
Full Committee Hearing: “The Housing Crisis—Identifying Tax Incentives to Stimulate the Economy.”
June 5, 2008

Today, our nation is faced with serious threats to its economic stability.  In recent months we have witnessed skyrocketing gas prices, rising food costs, and a weakened U.S. dollar.  These and other factors have combined to put a strain on Americans’ ability to make ends meet in an uncertain economic environment.

One area of our economy enduring particularly harsh challenges is the housing sector.  Housing starts are down more than 60% since 2005.  There has been a sharp decline in buyers, and there is now an 11 month supply of newly constructed homes on the market—almost double the normal amount.

As a result, following more 13 years of increases, home values are declining.  In the last quarter, prices fell by an annual rate of nearly 7 percent.   And, with the subprime crisis persisting, there is little hope of a quick turnaround.  All of these factors have lead to record foreclosures and could cost some 3 million American families their homes.

The situation poses a grave threat to the nation’s housing sector—a vital part of our economy.  Some estimate that it comprises as much as 10% of the U.S. Gross Domestic Product.  As a result, it is not hard to see the drag it can put on our nation’s overall growth.  Just yesterday, Fed Chairman Bernake stated that “until the housing market—and, particularly housing prices—show signs of [stabilizing], growth risks will remain to the downside.”

As the housing industry is dominated by small firms, this committee has a particular interest in these issues.  Homebuilding, realty, lending and other related businesses are all proven job creators.  However, with the drop in sales and little construction, many small employers have been forced to reduce staff or go out of business altogether.    In fact, since February of 2006, the home building sector has lost almost 500,000 jobs.

One of the best avenues to boost this sector is through targeted tax relief.   Tax incentives for affected industries could provide immediate benefits to millions of small businesses. This hearing will give the Committee the opportunity to evaluate some of these tax measures and how they can best assist the struggling housing sector. 

As this is a multifaceted problem and it is critical to look at all angles in identifying solutions.  For the current crisis, there need to be an examination of how policies will affect the consumers, lenders and the homebuilding industry.    

Today, the committee will look specifically at a number of tax reforms included in legislation passed by the House and the Senate.  These include the first-time homebuyer’s tax credit, increasing the low-income housing tax credit, and extending the years companies can carry-back losses.    

Each of the proposals tackles the problems in a different way. 
We will consider how—and if—these policies can lead to a more robust housing market, while avoiding the pitfalls that created the problem in the first place. 

This approach can play a significant role in halting job losses and creating high paying jobs.  In the end, it could not only help small businesses and homeowners, but the economy as a whole.