Waxman-Markey’s impact on housing prices — more than your average postage stamp
Proponents of the Waxman-Markey (W-M) cap-and-trade bill assure us it will cost the average household less than a postage stamp a day. The Heritage Foundation’s energy team — David Kreutzer, Ben Lieberman, Karen Campbell, William Beach, and Nicolas Loris — have rebutted this claim six four ways from Sunday (see here, here, here, and here).
Some postage stamps, of course, cost more than most people’s homes. For example, this rather plain looking item, a two-pence stamp issued by the Mauritius post office in 1847, sells for $600,000 or more.
Now, nobody is saying that Waxman-Markey will cost the average household what it costs to buy a mansion, but the National Association of Home Builders (NAHB) estimates that W-M could increase the purchase price of a new home by $1,371 to $6,387, and that this would have the effect of making 337,000 to 1.57 million households unable to qualify for a home mortage. Repeat after me: “Law of Unintended Consequences!”
NAHB summarizes its analysis on pp. 13-14 of its December 30, 2009 comment on various EPA rulemakings regarding greenhouse gases (GHGs) under the Clean Air Act. Here are the main steps:
- To produce the materials used to construct a typical single-family home (2,420 square feet plus two-car garage), manufacturers emit 55.42 metric tons (MT) of carbon dioxide-equivalent (CO2-e) GHGs.
- The U.S. Energy Information Administration (EIA), using a 4% discount rate, projects that under W-M, carbon allowances in 2030 would cost between $19 and $87 per MT.
- Manufacturers’ costs for producing homebuilding materials would increase by $1,037 to $4,831 per single family home (when I do the arithmetic, I get an increase of $1,052 to $4,821).
- Factor in additional financing and broker commissions, and the price of a typical single-family home would increase by $1,371 to $6,387.
- To qualify for a mortgage, borrowers may not exceed a specific “front end ratio” — the percentage of income that would be consumed paying principal and interest on the mortage, plus property taxes and insurance. A common standard is that these payments should not exceed 28% of household income.
- In the low-cost case (carbon permit price = $19/MT CO2-e), roughly 337,000 households that would qualify for a mortgage before the W-M-induced price increase, no longer qualify. In the high-cost case (carbon permit price = $87/MT CO2-e), approximately 1.57 million U.S. households are priced out.
Some enterprising reporter should jump on this. What do Reps. Waxman and Markey have to say about NAHB’s analysis? When they drafted the bill, what assumptions did they make about its potential impacts on housing prices and homeownership? Indeed, can they adduce any evidence that they gave even a moment’s consideration to these important matters?