Analysis of Options for Aiding the Homebuilding and Forest Products Industries

Pursuant to a congressional request, GAO reviewed existing federal policies relating to home construction, with special emphasis on exploring alternatives for reviving the homebuilding and forest products industries. The objectives of the review were to: (1) examine the nature and extent of the problems facing the homebuilding and forest products industries; (2) identify reasonable alternatives for providing short-term stimulus for the industries; and (3) evaluate the advantages and disadvantages of each alternate method.

The current downturn in housing production, which is deeper and of a longer duration than any downturn since World War II, has been caused primarily by high housing prices and interest rates. Housing stimulus proposals currently being considered by Congress vary greatly in their potential effectiveness and costs. Many of the proposed solutions are likely to take too long to have any countercyclical impact, while others are structured in ways which may limit their effectiveness or cause them to be excessively expensive. Although minor changes could be made to those proposals having the highest potential for success without increasing their costs appreciably, none of them can bring about a long-lived housing recovery without a significant drop in interest rates. GAO believes that a program which could provide a direct interest subsidy in the form of a government-subsidized loan discount or a self-implementing tax subsidy would be most effective. The slump in housing construction activity is the major cause for the reduced demand for forest industry products. Increasing U.S. market penetration from Canadian lumber imports and the overall reduction of wood volume used in residential construction are other causes affecting the U.S. demand. An increase in housing starts was the short-term solution most often suggested to address the current plight facing the industry. GAO projected that a 200,000 increase in the total 1983 housing starts would result in increased U.S. lumber and plywood production and increases in U.S. employment and prices for forest products.