Monday, July 16, 2012

Tax Credits to Support Housing Affordability

Last week, Barbara Sard and Bill Fischer of the Center on Budget and Policy Priorities proposed a renters tax credit. I couldn't help but immediately think back to the credit that Kenya Covington and I proposed in '07 in the Harvard Journal on Legislation, “From Renting to Homeownership: Using Tax Incentives to Encourage Homeownership among Renters." Our goal at that point (written before the mortgage, housing, and economic crisis that was soon to take place) was to reduce disadvantages in the tax code and help renters enter the homeownership market in a stable way.

Our abstract:

"This Article proposes changes to the federal tax code that would help more renters become homeowners. Currently, the tax code provides three primary benefits to homeowners but no corresponding benefits to the roughly 33.9 million renter households in the United States. The Article analyzes the difficulties facing renters seeking to become homeowners, with a particular focus on the low homeownership rates among black Americans. The Article then explains how renters pay the costs of property taxes and mortgage interest but reap none of the tax benefits received by homeowners. The Article proposes a Universal Renter-to-Homeowner tax credit that would partially compensate renters for the portion of rental fees that constitute real property taxes, while requiring that all beneficiaries of the credit complete a homeownership counseling course. The Article concludes that such a credit would not only address inequalities in the tax code but also would substantially lower down payment constraints for first-time homeowners and thus encourage homeownership."

Saard and Fischer at CBPP wrote today, after the crisis has hit. Their focus is not on creating stable homeownership, but instead on creating more stability in rental housing. It's an interesting strategy to address the same truth: renters are (and have been) disadvantaged in the market, and the benefits in the tax code are so strong that current homeowners have too much of an artificially induced advantage over renters. These are different from potential advantages in a fully functioning market - our current policy gives existing homeowners extra advantages, even though expanding stable rental and homeownership options could allow everyone to end up in the best type of home for them.

Saard and Fischer have a more complex tax credit proposal than ours – in short, they propose a credit to supplement the increasingly inadequate amounts available for rental assistance and other housing programs. It's an interesting spin on the idea and more creativity in this space will be needed to find solutions. In the meantime, renters will continue to be disadvantaged in the housing market and low-income renters will have more difficulty finding affordable, appropriate housing options in locations that work for them. This is a challenge that has slipped under the radar for a long period of time and continues to worsen.

Citation for our article: Covington, Kenya and Rodney Harrell. (Winter 2007). “From Renting to Homeownership: Using Tax Incentives to Encourage Homeownership among Renters.” Harvard Journal on Legislation, 44(1):97-117. (Available on lexisnexis or a local library)

CBPP's report, "RENTERS’ TAX CREDIT WOULD PROMOTE EQUITY AND ADVANCE BALANCED HOUSING POLICY" is available on their site. (They also have a project homepage at this page) -  note: added to original post 8/23/2012

For more on housing affordability over the last decade, see the US Profile, part of AARP's State Housing Profiles project at

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