Creates a middle income home ownership subsidy program

Summary of specific provisions

Section 1 establishes the criteria for eligibility for application to this program, and specifies what qualifies a household to receive assistance. Section 1 also establishes the procedure by which this program will assist homeowners, and how it will secure funding in order to do this.

Section 2 defines the effective date of this act.

Justification

As we continue to identify ways to increase home ownership among commu- nities of color, especially those in the middle income threshold who we wish to encourage their returning to and staying in urban communities, we recognize the importance of such efforts. We have rental subsidies and concurrently federal tax subsidies for ownership so we should estab- lish a subsidy for middle income home ownership up to $125,000 to increase the likelihood of ownership by persons of color in urban commu- nities.

In a report entitled, Using Tax Policy to Subsidize Homeownership by Richard K. Green and Andrew Reschovsky, the following is stated: "Since the 1950s the homeownership rate in the U.S. has exceeded 60 percent. In 2004 it reached a peak of 69 percent, and in the first quarter of 2010 stood at 67.1 percent. Despite the relatively high overall rate of homeownership in the U.S., there are large disparities among racial and income groups (U.S. Census Bureau, 2010). The homeownership rates among African Americans (46.1 percent) and among Hispanics (48.5 percent) are both less than two-thirds the rate among non-Hispanic whites (74.5 percent). Despite the relative economic gains of minorities over the past few decades and government efforts to reduce housing market discrimination, there has been little reduction in the racial dispari- ties in homeownership. Between 1989 and 2008, the percentage difference in homeownership rates between black and non-Hispanic white households remained virtually unchanged. In 2009, however, the gap grew by one percent. Hispanic homeownership rates showed a modest two percent increase relative to rates among non-Hispanic whites over this period (U.S. Census Bureau, 2009)."

Moreover, it indicates the following that there is, "clear evidence that federal income tax incentives for homeownership do in fact influence families' housing tenure-choice decisions (Rosen, 1979a; Rosen, 1979b; Green and Vandell, 1999). This research presupposes that homeownership is a decision based on a set of characteristics. Such characteristics include income, household size, marital status, race, and what econo- mists call the user cost of owning relative to renting: the amount of money a household must spend if it owns rather than rents an identical house or apartment...tax policy can be used to reduce the user cost of owning relative to renting and thus potentially influence households' decisions to purchase a home. For homeowners the before-tax user cost is the sum of the mortgage interest, the property tax, the net depreci- ation, and the overall maintenance (which includes insurance and utility costs). As demonstrated by Green and Vandell (1999), the ability of homeowners to deduct their mortgage interest and property tax payments from their gross income reduces the user cost of owner-occupied housing relative to renter-occupied housing by an amount equal to the federal marginal tax rate times the deductible portion of total user cost. Alternatively, giving taxpayers a fixed tax credit for their payment of mortgage interest and property tax reduces the user cost of owner-occu- pied housing relative to renter-occupied housing by the amount of the credit". There is sufficient data backed rationale to indicate that tax subsidy support to promote home ownership would increase the likelihood of persons of color not just renting but owning in urban communities. The effect of this legislation would further inspire young adults and middle income residents to live in these communities and further lay a foundation for positive economic development in these communities.

Prior legislative history

New Bill

Fiscal implications

To be determined.

Effective date

This act shall take effect on the one hundred eightieth day after it shall have become a law.