Bush proposes sweeping incentives for homebuyer

Nation's housing

March 11, 2001|By KENNETH HARNEY

THOUGH its housing proposals drew little attention last week, President Bush's budget outlined the most far-reaching combination of new federal home-buying incentives of any administration in more than two decades.

And virtually all the incentives are aimed at people on the economic margins of the housing marketplace - families and individuals with incomes too modest to get them into a first home of their own without some form of assistance in lowering the price, the down payment or the mortgage.

Other administrations - Democratic and Republican - have advocated and enacted major financial incentives for rental housing. But Bush wants to spend federal tax dollars on property ownership: moving moderate and lower-income families out of rental housing units and into homes they own.

The most ambitious proposal would create a new program of federal tax credits to stimulate building or rehabilitation of 100,000 homes for purchase by renters in the next five years. The plan would funnel tax credits to private builders and nonprofit housing groups. Tax credits are valuable because they reduce federal taxes dollar for dollar. Tax credits also can be sold.

A builder with plans to renovate and sell a group of central city rowhouses at below-market prices could raise money for the project by selling tax credits to private corporations and banks. The corporations and banks would use the credits over a period of years to lower their own tax bills to the federal government.

A highly successful program with bipartisan congressional support already does this for low-cost rental housing. The Bush budget would adapt the same concept for the first time to serve would-be homebuyers.

Robert Woodson, deputy staff director for Housing and Urban Development Secretary Mel Martinez, said the proposed program would be targeted at "distressed neighborhoods" - primarily inside cities - and would support a variety of locally devised ways to cut the costs of homeownership.

For example, he said in an interview, a builder could use the credits to help sell houses at subsidized prices. Or the builder or nonprofit agency could use the money raised by the credit to reduce the size of the mortgage and cut other costs to the buyer.

"We're not going to dictate from Washington exactly how local groups should do it," he said. The Treasury will issue rules governing homebuyer eligibility and guidelines on use of the credits. But it won't require cookie-cutter conformity on how the program operates around the country.

Though legislative language has yet to be drafted, the proposed program might work like this: Eligible local applicants would have incomes no higher than 80 percent of the median for the area. They would have to demonstrate household income and employment sufficient to handle the purchase and mortgage payments on a new or rehabilitated home, at a discount price.

The discount could be substantial - say $25,000 to $40,000 off a house that would normally sell for $100,000. As part of the deal, the new homeowners would have to agree not only to stay current on the mortgage, but also to pay back a portion of the value of their subsidy if they sold the house within some specified minimum period of time, such as five or 10 years.

There were two other new federal tax programs for entry-level home buying tucked away in the Bush budget as well:

A new $1 billion federal down payment fund. The fund would help lower-income renters accumulate enough for a down payment on a modest home. Up to $200 million per year would flow to local housing investment partnership programs over five years.

The money would match contributions from local third parties - Woodson said they could be private donations, local government agency and nonprofit funds, or employer contributions. The federal contribution would be up to $1,500 per family and could be used to lower or eliminate down payments and closing costs. Up to 130,000 households could get help with down payment fund dollars during the next five years.

Individual Development Accounts. Adapting a bipartisan proposal originally advanced by Sen. Joseph I. Lieberman of Connecticut, the 2000 Democratic vice-presidential candidate, and Republican Sen. Richard J. "Rick" Santorum of Pennsylvania, the Bush budget would provide federal tax credits to banks that matched the savings of low-income individuals in special, restricted accounts.

The funds in the accounts could be spent only on a home down payment, post-secondary educational costs, or a small business start-up. The key idea here, according to Santorum and Lieberman, is to target "working poor" families.

What's the outlook for the new Bush home-buying tax incentives? If an era of bipartisanship is indeed dawning on Capitol Hill - and that's a monumental if - these proposals look like solid bets for passage later this year.

Kenneth R. Harney is a syndicated columnist. Send letters in care of the Washington Post Writers Group, 1150 15th St. NW, Washington, D.C. 20071.

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