A competing proposal from Senate Treasury Chairman Ron Wyden (D-Ore.) that would provide a $15,000 tax credit to buyers has drawn fire from proponents of affordable housing who warn it could backfire with rising home prices. fuel and exacerbate the racial wealth gap because it would be available to all Americans buying their first home.
“A tax credit for all first-time homebuyers will widen the racial homeownership gap because it essentially increases homeownership in an environment where people of color already have so many other disadvantages,” said David Dworkin, president and CEO of the National Housing Conference, an advocacy organization for affordable housing.
The debate between housing advocates, civil rights groups and key lawmakers underscores the complications Democrats face as they attempt to advance the intertwined economic and racial equality priorities in President Joe Biden’s policy agenda. Determining who earns grants, how much to spend, and the potential unintended consequences of government intervention proves to be a daunting task as Democrats attempt to reshape the social safety net.
For many Democratic lawmakers and advocacy groups, the delivery of new housing assistance must be directed in a way that specifically addresses racial inequalities 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 over 50 years ago when segregation was legal.
Because home ownership is the primary way Americans build wealth, the gap is a major reason why the average wealth of black Americans is one-tenth that of white Americans — and the lack of intergenerational wealth continues the cycle.
Potential homebuyers who are white, on average, have much deeper pockets to tap for help with their down payment. The median wealth of the parents of young white adults, $215,000, is much greater than that of the parents of young black adults – $14,400. Differences in parental home ownership and wealth account for between 12 and 13 percent of the home ownership gap between black and white young adults, according to research from the Urban Institute.
One of the thorniest parts of the debate is whether all first-time homebuyers should be eligible for government support or whether it should further target first-generation buyers whose parents don’t have homes.
Wyden’s proposed $15,000 tax credit for first-time homebuyers aligns with a key component of the housing plan that Biden announced during the campaign. But Wyden faces opposition from affordable housing advocates who say it could drive home prices and fail to help people who really can’t afford a down payment. They say that relying on a tax credit would also be less effective than offering direct payments to home buyers, as suggested by Waters and Warnock.
“Those who really need the help will have a hard time buying a home without that help at the time of closing, but the IRS is not in a position to work with lenders and borrowers fast enough to make that happen.” through a tax credit,” said Jim Parrott, former Obama White House economic adviser. “So this tax credit will likely only help those who could have already made the down payment needed to buy a more expensive home, not expand access to homeownership.”
Wyden’s office said he wants his credit to go to all new homebuyers because the affordability crisis is wide-ranging and keeps young people from owning a home. While some people may be able to scrape together money for a down payment, the credit would help prevent them from wiping out their savings.
“Young people in their 20s and 30s simply cannot 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 that down payment and still have a financial buffer, especially if they come from a family that doesn’t have significant wealth.”
The proposal that has received the most steam is from Waters. The House Financial Services Committee, of which she chairs, allocated $10 billion for a program slated for inclusion in the Democrats’ social spending plan that would allow HUD to offer grants of up to $25,000 to first-generation startups. home buyers. Waters said in an interview on Wednesday that that figure has since risen to $13 billion 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 lobbying for a drastic expansion of the down payment proposal. as part of the broader bill. They support the legislation of Warnock, a member of the Senate Banking Committee, which would spend $100 billion to fund payments to first-generation first-time buyers.
Aides for Wyden said the tax code was an easier way to deliver the aid than setting up a new program, adding that tax payments were one of the most efficient methods of providing relief during the pandemic.
A separate proposal from Senator Mark Warner (D-Va.) — another member of the banking committee — would offer new first-generation home buyers 20-year mortgages for about the same monthly payment rate as a 30-year mortgage. The idea behind the plan is that home buyers can build up equity twice as quickly. The Treasury Department would subsidize interest and origination fees.
Housing advocates say Warner’s plan is insufficient on its own. Lisa Rice, president and CEO of the National Fair Housing Alliance, said building equity faster is a good thing, but it wouldn’t help would-be homebuyers who can’t get a mortgage in the first place.
“If you really want to promote racial equality, down payment assistance is the most effective way to do that,” Rice said. “If you want to increase home ownership opportunities for people of color, you have to tackle 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 also supports the Waters Act, according to his office.
“Together, they would make a meaningful difference in closing the racial wealth gap — the targeted down payment assistance by expanding home ownership in communities of color, and the 20-year idea of empowering the same people to build wealth in twice as much money. fast as they would in a normal loan,” said Parrott, a non-resident fellow at the Urban Institute.
“By limiting the package to first-generation homeowners, you are softening the upward pressure on housing prices and focusing the subsidy on those who lack intergenerational wealth, who are disproportionately colored families,” he added. “So it’s just a smart way to target the aid.”