Down payment tax credit: Biden’s housing plans include help for first-time buyers


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(Nerdwallet) – It is difficult to afford a house if you are a first-time buyer. The Biden administration has a plan for this: give newbies up to $ 15,000 to apply for a down payment. Frustrated future owners might favor the proposed solution. But that would almost surely drive up house prices.

The proposed first-installment tax credit is one of many housing-related proposals Biden has campaigned on. The administration has plans to help overcharged tenants, tackle racial inequalities, and encourage energy efficiency. Here’s a look at three campaign platform proposals the new administration might try to implement.

Increase in down payment assistance

For people who can’t wait to stop renting and start buying, the administration plan of the centerpiece is the tax credit for the first installment. This would give qualified buyers up to $ 15,000 which could be used as the down payment. The money would be advanced to buyers at closing, so they wouldn’t have to wait to file their tax returns before collecting.

The payment of a deposit is a major obstacle for many potential first-time buyers. In NerdWallet Homebuyers survey 2020, people who did not have a home were asked what their main barrier was.

  • Not having enough savings for a down payment was the biggest barrier to homeownership for 37%.
  • This was the second most common response, behind the 42% who cited low income.

A tax credit to top up down payments “could be useful to homebuyers in particular who did not have enough money to set up a down payment and closing costs,” says Miriam Axel-Lute, editor-in-chief of the Shelterforce housing publication. But, she adds, that would not solve the deeper problems created by the tax system.

Axel-Lute is in favor of reforming or eliminating tax deductions for mortgage interest and property taxes, which subsidize affluent homeowners with large home loans and high taxes. Replacing these deductions with tax credits could divert attention from government assistance to people with low incomes and more modest housing.

Prices could rise even faster

More immediately, the first down payment tax credit could accelerate home price growth if implemented – and prices are already skyrocketing.

As most potential buyers will tell you, there aren’t enough homes for sale to meet demand. Yet the tax credit would increase the number of hopeful home buyers. Without an increase in the number of homes for sale, the result would be even faster price growth, says Lawrence Yun, chief economist for the National Association of Realtors.

At the end of November, according to the latest data available from the NAR, the supply of homes for sale was at its lowest for 2.3 months. This means that at the pace of November sales, it would take a little over two months to sell the 1.28 million homes that were on the market. When the supply is so low, sellers take advantage of their bargaining power over buyers. The median home price of $ 310,800 in November was 14.6% higher than the median price 12 months earlier.

It’s not your 2008 recession

Biden’s proposed tax credit is modeled after a tax break for home buyers that was in effect from April 2008 to April 2010. It was intended to pull the real estate industry out of the Great Recession by getting people to buy homes. houses. This tax credit solved problems that were the opposite of those that exist today.

In the first quarter of 2008, house prices were down and today they are going up. There was an 11.2 month supply of homes for sale in 2008, almost five times more than in November 2020.

Biden’s proposed tax credit would benefit people who may be eligible for a loan based on their credit scores and debt to income ratios, and who could use another $ 15,000 to get above the down payment bump.

The Bush and Obama era tax credit supported buying a home when it was needed. But today, home buying is strong and the nation needs more homes to build. According to a 2018 report by Freddie Mac, the United States had 2.5 million housing units “below what is needed to meet long-term demand.”

Add and improve the housing stock

Biden’s campaign platform calls for housing construction, with details to be worked out. One of the goals is to build 1.5 million housing and social housing units over 10 years with an emphasis on providing housing to low-income people.

The plan calls for the creation of a $ 100 billion affordable housing fund, which would pay to build and rehabilitate homes, and to make existing homes more energy efficient. Some of the money would go to communities that “encourage more affordable housing” by eliminating exclusionary zoning policies that contribute to urban sprawl and have been used “to keep people of color and low-income families away. income of certain communities ”.

“Exclusionary zoning” was a term long used in affordable housing circles that might strike the general public in Biden’s day. It refers to land use policies that restrict high density or low cost housing by requiring large areas or prohibiting multi-family dwellings. The Biden plan calls for using fair housing regulations and federal dollars to push local governments to revise zoning.

Extension of assistance to tenants

Many of Biden’s affordable housing proposals are designed to help renters. The most ambitious would be an expansion of rent assistance under section 8. Due to lack of funding, only about 1 in 4 eligible households receive federal rent assistance, according to the Center on Budget and Policy Priorities. Biden’s plan calls for increased funding to give out Section 8 housing vouchers to all eligible people.

All of these proposals would take time to implement. In the meantime, Axel-Lute says: “The most important thing is to manage the crisis of arrears of rents owed” following the pandemic. At least $ 25 billion in rent arrears were due as of January 2021, according to the National Council of State Housing Agencies.

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Holden Lewis writes for NerdWallet. Email: [email protected] Twitter: @HoldenL.

The Property Line: Biden Housing Plans Include Down Payment Help article originally appeared on NerdWallet.

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