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Sule Aygoren Carranza is managing editor of Real Estate Forum.

WASHINGTON, DC-A tax credit, zero-down payment mortgage program or any other incentive to spur people to buy homes isn’t going to fix the current issue in the housing market, maintain industry organizations. The issue lies not in the oversupply of homes for sale, but in the liquidity.

Therefore, lawmakers must be careful not to approve proposals that would do more harm than good. Jim Arbury, senior vice president of government affairs for the National Multi Housing Council and the National Apartment Association Joint Legislative Program, states, “The primary objective at this point should be to avoid causing a full-blown credit crisis.

“Investors have lost confidence in the mortgage market securitization process and until that confidence is restored, the housing market will continue to suffer. If Congress wants to address the problems in the housing sector, we would encourage them to start with measures targeting the mortgage market instead of the sales market.”

A taxpayer-financed solution such as a tax credit–namely, the $15,000 proposed credit for new homebuyers–is fiscally irresponsible and would lead to even more foreclosures, says the locally based executive. The oversupply issue, he adds, is one the market can correct on its own.

“It creates an incentive for lenders to foreclose so that they can entice a buyer to use the government subsidy to take the house off their balance sheet,” he explains. “In essence, the credit would bail out lenders who made bad decisions by making risky mortgages. It would also accelerate the decline in house prices. If responsible owners want or need to sell their houses, they are now competing with new and foreclosed properties that come with a $15,000 taxpayer subsidy, so they’re forced to lower their sales price.”

A sizable number of foreclosures, Arbury maintains, is unavoidable and the unfortunate result of the “homeownership at any cost” policy of recent years. Though it may lead to a recession, he says, the focus should be on stimulating the general economy and helping those most in need. The $9 billion that would go toward a homebuyer tax credit, he suggests, should go into the creation of affordable housing. “More Americans are hurt by our shortage of affordable housing than by the subprime crisis,” he points out. “For decades, we have focused on single-family housing, but changing demographics and housing preferences are driving more people away from the typical suburban house. In the short term, we need to focus on the mortgage market and enact policies that keep people who can afford their houses in those houses. In the long-term, we need a new housing policy that tackles our affordable housing shortage and that catches up with the changing demographics that are driving new housing choices.”

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