Democrats clash over aid for first-time buyers
A competing proposal from Senate Finance Chairman Ron Wyden (D-Ore.) That would offer a $ 15,000 tax credit to buyers has caught the attention of affordable housing advocates who warn it could backfire it by fueling rising house prices and exacerbating the racial divide because it would be available to all Americans buying their first home.
“A tax credit for all first-time home buyers will widen the racial homeownership gap because it essentially increases homeownership in an environment where people of color already have so much. ‘other disadvantages,’ said David Dworkin, president and CEO of the National Housing Conference, an affordable housing advocacy group.
Debate between housing advocates, civil rights groups and leading lawmakers highlights complications Democrats face as they attempt to advance intertwined economic and racial equity priorities in the political agenda of President Joe Biden. Figuring out who deserves grants, how much to spend, and the potential 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 assistance should be targeted in a way that specifically addresses racial disparities in homeownership. Only 44% of black Americans own a home, compared to 75% of white Americans. The gap is about as wide today as it was over 50 years ago, when segregation was legal.
Because owning a home is the number one way Americans build wealth, the divide is a big reason why the average net worth of black Americans is one-tenth that of white Americans – and the lack of intergenerational wealth continues the cycle.
Potential buyers who are white, on average, have much deeper pockets to tap into for help with their down payment. The median wealth of parents of young white adults, $ 215,000, far exceeds that of parents of young black adults – $ 14,400. According to a study by the Urban Institute, differences in parental property and wealth represent between 12 and 13% of the property gap between black and white young adults.
One of the thornier parts of the debate is whether all first-time home buyers should be eligible for government assistance or whether it should be more targeted to first-generation buyers, whose parents do not own. Of house.
Wyden’s proposed $ 15,000 tax credit for first-time homebuyers aligns with an important part of the housing plan Biden touted during the election campaign. But Wyden faces opposition from affordable housing advocates who say it could drive up house prices and not benefit people who really can’t afford a down payment. They say relying on a tax credit would also be less effective than offering direct payments to homebuyers, as Waters and Warnock suggest.
“Those who really need help will have a hard time buying a home without having this help at the time of closing, but the IRS is ill-suited to working with lenders and borrowers quickly enough to make this happen through a tax credit. Said Jim Parrott, former Obama White House economic adviser. “So this tax credit will probably only help those who could already have made the down payment necessary to buy a more expensive house, and not to increase access to homeownership. “
Wyden’s office said it wants its credit to go to all first-time homebuyers because the affordability crisis is vast and prevents young people from becoming homeowners. While some people may be able to tinker with money for a down payment, credit would help them avoid wiping out their savings.
“Young people in their twenties and thirties just cannot afford 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 cushion, especially if they come from a family that doesn’t have significant wealth.”
The proposal that has gained the most popularity is that of Waters. The House Financial Services Committee, which she chairs, has allocated $ 10 billion for a program to be included in the Democrats’ social spending plan that would allow HUD to offer grants of up to 25,000 $ to first-generation first-time homebuyers. Waters said in an interview on Wednesday that that figure had since risen to $ 13 billion during negotiations with the Senate.
But affordable housing and civil rights groups, including the National Fair Housing Alliance and the National Urban League, are now pushing for the down payment assistance proposal to be significantly expanded. as part of the larger bill. They are backing legislation from Warnock, a member of the Senate Banking Committee, which would spend $ 100 billion to fund payments to first-generation buyers.
Aides for Wyden said the tax code was an easier way to provide assistance than setting up a new program, and added that tax payments were among the most effective methods of providing assistance. relief during the pandemic.
A separate proposal from Sen. Mark Warner (D-Va.) – another member of the banking committee – would offer first-generation homebuyers 20-year mortgages for roughly the same monthly payment rate as a mortgage. 30 years old. The argument behind the plan is that it would allow homebuyers to accumulate equity twice as quickly. The Treasury Department would subsidize the interest rate and origination fees.
Housing advocates say Warner’s plan alone is insufficient. National Fair Housing Alliance President and CEO Lisa Rice said increasing equity faster is a good thing, but it wouldn’t help potential homebuyers who can’t get a loan. mortgage in the first place.
“If you really want to advance racial equity, helping with a down payment is the most effective way to do it,” Rice said. “If you want to expand home ownership opportunities for people of color, you need to remove barriers to entry. “
Parrott said lawmakers should pair the Warner plan with more direct help with a down payment modeled on the Waters and Warnock proposals. Warner co-sponsored Warnock’s proposal and also supports Bill Waters, according to his office.
“Together, they would make a significant difference in closing the racial wealth gap – targeted down payment assistance by expanding homeownership in communities of color, and the 20-year idea by enabling same people build wealth at twice the rate than 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 ease the upward pressure on home prices and focus the subsidy on those who lack intergenerational wealth, who are disproportionately families of color,” he said. he adds. “So it’s just a smart way to target aid. “