Hey Congress! Subsidize this!
Smart Growth America of Washington — a coalition of builders and real estate professionals — is lobbying Congress to institute tax-exempt down payment savings accounts for first-time homebuyers.
Housing subsidies, including the mortgage interest tax deduction (MID), account for nearly $450 billion a year in federal spending. The problem is, the efficacy of these programs is suspect. Especially the MID, which has been proven time and again to benefit a small portion of only the wealthiest homeowners.
Tax-free accounts for college and retirement savings already exist, why not for down payment savings as well? The coalition takes its inspiration from a home loan savings program that has been in effect in the state of Montana since the late ‘90s. First-time homebuyers are allowed to deduct up to $3,000 a year from their state income tax returns in order to save for their down payment.
The Federal Home Loan Bank of New York matches funds for down payment savers. First-time homebuyers in New York and New Jersey who earn no more than 80% of median income earn $4 in matching funds for every dollar saved, up to a total of $7,500.
While neither program has dramatically affected the savings rate in either state, proponents of the plan argue it is the best way to sustainably and fairly promote homeownership.
first tuesday insight
Here’s why we like this idea: the more you save, the more you save. This is opposed to the classic American approach of rewarding spending. Despite the simple genius of the idea, it’s unlikely to get off the ground — the American economy is just too dependent on spending.
It’s just as well, since saving any amount, no matter the reward, is a dubious proposition for today’s middle-class American. Real incomes for the 99% fell dramatically during the Great Recession. Perhaps not as well known, incomes have yet to recover for the majority of Americans. In fact, real income continues to fall.
The calamitous combination of rising interest rates and falling incomes has sent buyer purchasing power into a tailspin. Speculator-driven asset price inflation of late has only added insult to injury.
While we fully support the idea of encouraging savings so buyers might have a chance to get into California real estate, we are also pragmatists about the situation. First, let’s get the highly regressive MID off the tax code and start thinking about rebuilding the wreckage of middle-class housing demand.
Re: “Tax-free accounts for homes” from the New York Times