A new report from the Center for Budget and Policy Priorities entitled “Renters’ Tax Credit Would Promote Equity and Advance Balanced Housing Policy” examines how a renter tax credit could help in implementing a more balanced federal housing policy. The report indicates that about 75 percent of federal housing expenditures support homeownership initiatives, yet the bulk of these go to the top fifth of households by income, who typically could afford to purchase a home without subsidies and in fact, more than half of federal spending on housing supports households with incomes above $100,000. On the other hand, the report notes that low-income renters are more likely to be rent burdened (or paying more than 30 percent of their income towards housing costs) and notes that federal rental assistance programs only reach about one in four eligible low-income renters, due to funding limitations.

In the report, CPBB suggest that that Congress could further improve the effectiveness and fairness of the nation’s housing federal housing programs by directing a modest share of the savings from reform of homeownership subsidies to address part of the unmet need for housing assistance among lower-income renters, in the form of a federal renters’ tax credit. According to CPBB, the specifics of this proposed tax credit are as follows:

  • Administered by states and implemented through a public-private partnership with property owners and banks;
  • Each state would receive a fixed dollar amount of credits, and would allocate the credits based on federal income eligibility rules and state policy preferences;
  • Families assisted with credits would pay no more than 30 percent of their income for rent (unless the rent exceeds a cap based on typical rents in the local market, in which case the family would pay the remainder);
  • States could award families credit certificates that would enable them to use the credit to help rent a modest unit of the family’s choice;
  • Alternatively, states could also enter into agreements allocating credits to particular owners or banks, which would use the credits to assist eligible families. The owner of the rental unit would claim a federal tax credit based on the rent reduction it provides, or could pass the credit through to the bank holding the mortgage on the property in return for a reduction in mortgage payments.

The organization suggests that a renters’ tax credit capped at $5 billion (which represents less than 5 percent of total federal homeownership tax expenditures) could assist about 1.2 million of the lowest-income renter households, and would reduce each household’s rent by an average of $400 and cut the number of most rent burdened very low-income households by about 700,000. In addition, CPBB predicts this credit could lift 250,000 families out of poverty and four of five of the poorest families out of deep poverty (defined as having income below 50 percent of the federal poverty guidelines).

Most notably, CPBB suggests that this tax credit could complement programs such as the Low-Income Housing Tax Credit and other affordable housing development programs that are generally insufficient for pushing rents down to the rent levels necessary for the lowest-income households. In addition, it would alleviate some of the significant strain that is already placed on the Section 8 voucher and other rental assistance programs which only meet a modest share of the current need.

Click here to read the report.