President Joe Biden has proposed a set of new tax breaks aimed at addressing the country's affordable housing issues, including a $10,000 credit for first-time homebuyers and a separate $10,000 credit for "starter home" sellers. The proposals, outlined during his State of the Union speech on Thursday, have drawn mixed reactions from housing experts and lawmakers.
"I know the cost of housing is so important to you," Biden said during his address. "If inflation keeps coming down, mortgage rates will come down as well. But I'm not waiting."
Under the proposed "mortgage relief credit," middle-class, first-time homebuyers would receive $5,000 per year for two years, effectively lowering the mortgage interest rate for a median-price home by 1.5 percentage points over that period, according to the White House. Additionally, middle-class families who sell their "starter homes," defined as properties below the median price for the seller's county, to another owner-occupant would be eligible for a one-year credit of up to $10,000.
The White House stated that the "lock-in" effect, where homeowners are reluctant to sell their homes and give up low mortgage rates, even when their current homes no longer fit their needs, has contributed to the housing supply crisis. The proposed tax credits are intended to incentivize homeowners to sell and help first-time buyers enter the market.
However, experts have expressed doubts about the potential impact of these proposals, especially given the current political climate. "Unless [Biden's proposed credit] counts as qualifiable income, it's not going to actually make it easier for homebuyers to qualify for mortgages," said Keith Gumbinger, vice president of mortgage website HSH.
The housing supply crisis has been a growing concern since the Great Recession, with a "perfect storm" of issues, including declines in new home construction, contributing to the problem, according to Janneke Ratcliffe, vice president for housing finance policy at the Urban Institute.
"What we don't need today in the market is more demand," Gumbinger added. "We have plenty of demand, but we don't have adequate supply."
Despite these challenges, the proposed tax credits have been welcomed by some as a step in the right direction. David M. Dworkin, CEO of the National Housing Council, called Biden's address "the most consequential State of the Union address on housing in more than 50 years."
The tax credits would be available for homebuyers who purchase properties in 2024 or 2025 and would be limited to households earning less than $200,000, according to a senior Biden administration official. The White House estimates that the first-time buyer tax credit could help 3.5 million middle-class families buy their first home, while the homeowner tax credit would assist about 3 million families in purchasing a larger home.
However, the fate of these proposals remains uncertain, as Congress would need to pass legislation to change the tax code, a challenging task in an election year. "Passing tax credits could be 'a particularly arduous task in an election year - though their inclusion in the address underscores the salience of the skyrocketing cost of housing for Americans nationwide,'" noted Nick Luettke, an associate economist at Moody's.
As Americans continue to grapple with the dual challenges of high interest rates and surging home values, the Biden administration's proposed tax credits offer a glimmer of hope for those aspiring to homeownership. However, the path to enacting these measures is fraught with political hurdles, and their ultimate impact on the housing market remains to be seen.
