A competing proposal from Senate Finance Chair Ron Wyden (D-Ore.) that would provide a $15,000 tax credit to buyers has drawn fire from affordable housing advocates who warn that it could backfire by fueling rising home prices and exacerbating the racial wealth divide because it would be available to all Americans purchasing their first homes.
“A tax credit for all first-time homebuyers is going to expand the racial homeownership gap, because it is essentially increasing 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 affordable housing advocacy group.
The debate among housing advocates, civil rights groups and key lawmakers underscores the complications Democrats face as they try to advance economic and racial-equity priorities intertwined in President Joe Biden’s policy agenda. Determining who is deserving of subsidies, how much to spend and the potential unintended consequences of government intervention is proving to be a daunting task as Democrats try to reshape the social safety net.
For many Democratic lawmakers and advocacy groups, the delivery of new housing assistance must be targeted in a way that specifically addresses racial disparities in homeownership. Just 44 percent of Black Americans own homes, compared with 75 percent of white Americans. The gap is roughly as wide today as it was more than 50 years ago when segregation was legal.
Because owning a home is the primary way Americans build wealth, the divide is a significant reason why Black Americans’ average net worth is one-tenth that of white Americans’ — and the lack of intergenerational wealth continues the cycle.
Potential homebuyers who are white have, on average, much deeper pockets to tap for help with their down payment. The median wealth of young white adults’ parents, $215,000, far exceeds that of the parents of young Black adults — $14,400. Differences in parental homeownership and wealth account for between 12 percent and 13 percent of the homeownership gap between Black and white young adults, according to research by the Urban Institute.
One of the thorniest parts of the debate is whether all first-time homebuyers should be eligible for government aid or if it should be further targeted at first-generation buyers, whose parents do not own a home.
Wyden’s proposed $15,000 tax credit for first-time homebuyers aligns with an important plank of the housing plan that Biden touted on the campaign trail. But Wyden is facing opposition from affordable housing advocates who say it could push up home prices and fail to benefit people who truly 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 proposed by Waters and Warnock.
“Those who really need the help will have a hard time buying a home without having that help at the time of closing, but the IRS is ill-suited to work with lenders and borrowers quickly enough to make that happen through a tax credit,” said Jim Parrott, former economic adviser to the Obama White House. “So this tax credit is likely to help only those who already could have put down the needed down payment buy a more expensive house, not expand access to homeownership.”
Wyden’s office said he wants his credit to go to all first-time homebuyers because the affordability crisis is broad and prevents young people from owning homes. While some people may be able to cobble money together for a down payment, the credit would help them avoid wiping out their savings on it.
“Young people in their 20s and 30s are simply unable to afford to buy their first house,” 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, particularly if they come from a family that doesn’t have significant wealth.”
The proposal that has gained the most steam is from Waters. The House Financial Services Committee, which she chairs, allotted $10 billion for a program slated for inclusion in Democrats’ social spending plan that would allow HUD to offer grants up to $25,000 for first-time, first-generation homebuyers. Waters said in an interview Wednesday 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 the down payment assistance proposal to be expanded dramatically as part of the broader bill. They’re backing legislation from Warnock, a member of the Senate Banking Committee, that would spend $100 billion to fund payments to first-time, first-generation buyers.
Aides for Wyden said the tax code was an easier way to deliver the assistance than setting up a new program and added that tax payments have been among the most efficient methods of delivering relief during the pandemic.
A separate proposal from Sen. Mark Warner (D-Va.) — another Banking Committee member — would offer first-time, first-generation homebuyers 20-year mortgages for roughly the same monthly payment rate as a 30-year mortgage. The pitch behind the plan is that it would allow homebuyers to build equity twice as fast. The Treasury Department would subsidize the interest rate and origination fees.
Housing advocates say Warner’s plan is insufficient on its own. National Fair Housing Alliance President and CEO Lisa Rice said building equity more quickly 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 advance racial equity, down payment assistance is the most effective way to do that,” Rice said. “If you want to expand homeownership opportunities for people of color, you’ve got to address 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 bill, according to his office.
“Together they would make a meaningful difference in closing the racial wealth gap — the targeted down payment assistance by expanding homeownership in communities of color, and the 20-year idea by allowing the same folks to build wealth at twice the pace they would in a normal loan,” said Parrott, a nonresident fellow at the Urban Institute.
“By limiting the package to first-generation homeowners you’re mitigating the upward pressure on home prices, and concentrating the subsidy on those who lack intergenerational wealth, which are disproportionately families of color,” he added. “So it’s just a smart way to target the help.”