Biden proposes new $5K tax credit

Housing initiatives called boldest effort in decades to lower costs, expand access

President Biden proposed a set of new housing initiatives in Thursday’s State of the Union address, including tax credits to offset high mortgage rates for first-time home buyers and encourage people to move out of starter homes and put them on the market.

The proposals would provide middle-class, first-time buyers with $5,000 per year for two years. That would have the same effect as lowering a buyer’s mortgage rate by more than 1.5 percentage points for two years on the median home, according to the White House.

Biden also called on Congress to provide a one-year credit of up to $10,000 for families who sell their starter homes, so long as their houses are below the median price in their county. The idea is to free up a part of the market that has been effectively frozen, as thousands of homeowners cling to low mortgages of 2% or 3% and avoid buying a new home with a much higher rate.

The proposals build on the administration’s prior moves to create more homes, tackle high rents and help first-generation buyers get a down payment. And the moves come as housing persists as one of the most out-of-reach parts of the economy and remains a key issue for voters in this year’s election.

“This plan is the most consequential set of housing recommendations in a State of a Union in over 50 years, and I say that because I’ve looked them all up,” said David Dworkin, president and chief executive officer of the National Housing Conference and a former Treasury Department official.

Dworkin stressed the administration’s most consequential housing plan was its commitment to build and preserve 2 million homes.

“We have a huge hole this would make a big dent in,” he said. “The supply side is driving housing prices, and this is the most ambitious housing supply agenda in recent history.”

The country faces a shortfall of millions of homes, with underinvestment going back decades. Rents also soared during the pandemic, quickly becoming a top driver of inflation. Plus, the Federal Reserve’s fight to tame inflation prompted a rise in mortgage rates that continue to push many buyers out of the market.

Zoomed out even further, Biden’s efforts will also be tested by the strange nature of the post-pandemic market. Hundreds of thousands of new units finished construction last year. But much of it skews toward the higher end of the market, and housing experts have grown concerned about a simultaneous hollowing out of more affordable options. Senior White House officials argue many of the White House’s efforts target affordable housing and are designed to open up options for middle-class buyers.

Lael Brainard, director of the National Economic Council, called it “the boldest plan to lower housing costs and expand housing access in decades.”

Some housing experts are concerned new credits could inject even more demand into the market while supply is still catching up — possibly pushing prices even higher.

“Increasing the number of buyers will, generally speaking, increase home prices for everyone,” said Kyle Pomerleau, senior fellow at the American Enterprise Institute, a right-leaning think tank. “It’s pretty straightforward.”

As he has done before, Biden is also calling on Congress to provide up to $25,000 in down payment assistance to first-generation home buyers.