A competing proposal from Senate Finance Chairman Ron Wyden (D-Ore.) To give buyers a $ 15,000 tax credit has caught fire from affordable housing advocates, who warn it could backfire by fueling soaring house prices and exacerbating the racial wealth gap because it would be available to all Americans who buy their first homes.
“A tax credit for all first-time home buyers will widen the racial homeownership gap by essentially increasing home ownership in an environment where people of color already have so many other disadvantages,” said David Dworkin, President and CEO of the National Housing Conference. a lobby for affordable housing.
The debate between housing officials, civil rights groups, and key lawmakers underscores the complications Democrats face when trying to advance economic and racial priorities that are intertwined on President Joe Biden’s political agenda. Determining who earns subsidies, how much money to spend, and the possible unintended consequences of government intervention is proving to be a daunting task as Democrats attempt to reshape the social safety net.
For many democratic lawmakers and advocacy groups, the provision of new housing subsidies must be geared towards specifically addressing racial differences in home ownership. Only 44 percent of black Americans own a home compared to 75 percent of white Americans. The gap is about the same today as it was more than 50 years ago when racial segregation was legal.
Since home ownership is the single most important way Americans build wealth, the gap is a key reason why the average net worth of black Americans is one-tenth the net worth of white Americans – and the lack of intergenerational wealth sets the cycle away.
Potential homebuyers who are white, on average, have much deeper pockets to help with their down payment. The average net worth of parents of young white adults, $ 215,000, far exceeds that of parents of young black adults – $ 14,400. Differences in home ownership and parents’ wealth account for between 12 and 13 percent of the home ownership gap between black and white young adults, according to a study by the Urban Institute.
One of the most sensitive aspects of the debate is whether all first-time home buyers should be eligible for state aid or whether they should continue to target first-generation buyers whose parents do not own a home.
Wyden’s proposed $ 15,000 tax credit for first-time home buyers coincides with an important part of the housing plan that Biden announced during the election campaign. But Wyden has met opposition from affordable housing advocates who say it could drive house prices up and of no benefit to people who really can’t afford a down payment. They also say relying on a tax credit would be less effective than offering direct payments to home buyers, as suggested by Waters and Warnock.
“Those who really need help will have a hard time buying a home without that help at the time of closure, but the IRS is incapable of working with lenders and borrowers quickly enough to do so through a tax credit said Jim Parrott, former Obama White House economic advisor. “So this tax credit will likely only help those who could have made the down payment required to buy a higher-priced home, rather than increasing their access to home ownership.”
Wyden’s office said he wanted his loan to benefit all first-time home buyers as the affordability crisis is widespread and preventing young people from owning a home. While some people are able to cobble together cash for a down payment, the loan would help them not to wipe out their savings.
“Young people between 20 and 30 just can’t afford to buy their first home,” Wyden said in a statement. “They can often afford the monthly payments but don’t have the money to make the down payment and still have some financial cushion, especially if they come from a family that doesn’t have significant wealth.”
The suggestion that won the most steam comes from Waters. The House of Representatives Financial Services Committee, which she chairs, has allocated $ 10 billion to a program that would be included in the Democrats’ social spending plan that would allow HUD to offer grants of up to $ 25,000 to first-generation buyers . Waters said in an interview on Wednesday that the number has risen to $ 13 billion since then in negotiations with the Senate.
But affordable housing and civil rights groups, including the National Fair Housing Alliance and the National Urban League, are now campaigning for the down payment support proposal to be dramatically expanded as part of the broader bill. They support a bill by Warnock, a member of the Senate Banking Committee, that would spend $ 100 billion to fund payments to first-generation first-generation buyers.
Aides for Wyden said tax legislation was an easier way to provide the aid than setting up a new program, adding that tax payments were one of the most efficient ways to provide relief during the pandemic.
A separate proposal from Senator Mark Warner (D-Va.) – another member of the banking committee – would offer first-generation first-generation mortgages 20-year mortgages at roughly the same monthly rate as a 30-year mortgage. The idea behind the plan is that homebuyers can build equity twice as fast. The Treasury Department would subsidize the interest rate and subscription fees.
Housing advocates say Warner’s plan alone is insufficient. Lisa Rice, president and CEO of the National Fair Housing Alliance, said it was a good thing to build equity faster, but it wouldn’t help budding homebuyers who can’t get a mortgage at all.
“If you really want to advance racial justice, down payment aid is the most effective way to do it,” said Rice. “If you want to expand home ownership opportunities for people of color, you have to overcome the barriers to entry.”
Parrott said lawmakers should couple the Warner Plan with more direct down payment assistance along the lines of the Waters and Warnock proposals. Warner co-sponsored Warnock’s proposal and, according to his office, also supports the Waters Act.
“Together they would make a meaningful difference in closing the racial wealth gap – the targeted down payment assistance by expanding home ownership in colored communities and the 20 year idea of allowing the same people to build wealth twice as fast as other countries regular loan, ”said Parrott, a non-resident fellow at the Urban Institute.
“By restricting the package to first-generation homeowners, you are relieving upward pressure on home prices and focusing subsidies on those who do not have intergenerational wealth, who are disproportionately colored families,” he added. “So it’s just a clever way of using the help in a targeted manner.”