© Reuters. U.S. Treasury Secretary Janet Yellen delivers a speech during a visit to the Lithium Conversion plant of U.S. lithium producer Albemarle, in La Negra, Antofagasta, Chile, March 2, 2024. REUTERS/Cristian Rudolffi
By David Lawder and Susan Heavey
WASHINGTON (Reuters) -President Joe Biden’s proposed tax credits for certain home buyers and sellers could help boost the nation’s housing supply and make homes more affordable, U.S. Treasury Secretary Janet Yellen said on Friday, a day after the president unveiled the proposal in his annual State of the Union speech.
Yellen said in an interview on MSNBC that Biden’s top economic priority was helping Americans deal with higher prices and major living expenses, including the high cost of housing.
The White House said the proposed credit would provide middle-class first-time homebuyers with an annual tax credit of $5,000 a year for two years — the equivalent of cutting interest rates by more than 1.5 percentage points on the median-priced home.
To encourage more homeowners to sell their “starter homes” to these buyers, Biden is proposing a one-year, $10,000 tax credit, which would apply to homes below their area’s median home price. Many of these buyers are locked into low mortgage rates, and the credit is aimed at offsetting higher mortgage costs for a “trade-up” or downsized home.
According to a White House fact sheet, the credits will aid some 3.5 million first-time homebuyers and 3 million sellers. Based on credit rates, that would cost some $65 billion over two years.
Asked on MSNBC whether the credits could overheat the economy, Yellen said Biden wanted to make sure that middle-class families could afford to buy homes.
“He’s also proposing steps to expand the supply of housing,” Yellen said. “And I believe they would be very helpful: investing in refurbishment of properties, expanding the low-income housing tax credit that will be helpful to Americans deal(ing) with the shortage of affordable housing.”
But these credits would need approval by Congress, which is struggling to approve this year’s government funding amid Republican demands for spending cuts. Passage in an election year is extremely unlikely, but a major revamp of the tax code is expected in 2025, when the Republican-passed individual tax cuts expire.
Biden’s inclusion of the housing tax credit proposals in his address, along with a pledge to use other tools to encourage the development or renovation of over 2 million homes to close a housing supply gap, underscores the importance of housing affordability on the minds of voters.
“The lack of affordable housing supply is hurting the middle class and depriving first-generation and first-time homebuyers of the financial security that homeownership and the American Dream provide,” National Association of Realtors President Kevin Sears said in a statement.
He added that the group was “grateful” that Biden was willing to explore new tax measures to help deal with a shortfall of 5.5 million affordable housing units in the U.S.
In his fiscal 2025 budget on Monday, Biden will also call for an expansion of the Low Income Housing Tax Credit and a $20 billion competitive grant fund to support development of affordable multifamily rental units, the White House said.
Moody’s (NYSE:) economist Nick Luettke said in a research note that tax incentives to encourage more renters to jump into home ownership would free up apartment units, easing price pressure on that market.
