The Need to Rebalance Federal Housing Policy: Time for a Renters’ Tax Credit

July 16, 2012 at 2:48 pm

The nation’s housing policy is out of whack.  We’ve focused for decades on policies to increase homeownership, and most federal housing dollars benefit families with relatively little need for assistance.  When you count both direct spending and tax subsidies, about 75 percent of federal housing dollars support homeownership – though only two-thirds of households own homes.  Overall, more than half of federal spending on housing benefits households with incomes above $100,000 (see chart).

Meanwhile, the nation’s lowest-income renters are far likelier to struggle to pay for housing– and their affordability problems are growing.

It’s time to rebalance the nation’s housing spending to help these low-income households.

A federal renters’ tax credit could take an important step in this direction, as we explain in a new paper.  It would be administered by states, which would each receive a fixed dollar amount of credits and allocate them based on federal income eligibility rules and state policy preferences.

Such an approach would make it possible for more poor families to afford housing at a relatively modest overall cost.  A renters’ credit capped at a total of $5 billion could:

  • Assist about 1.2 million of the lowest-income renter households;
  • Reduce each household’s rent by an average of $400;
  • Cut the number of very low-income households paying more than half of their income for housing by about 700,000; and
  • Lift 250,000 families out of poverty and lift four of five of the poorest families it assists out of deep poverty (defined as having income below half of the federal poverty guidelines).

It’s the right time to consider such a credit, as policymakers gear up for a potential tax reform debate, driven in part by deficit-reduction pressures and the scheduled expiration of President Bush’s income tax cuts at the end of 2012.  That debate will likely consider how to restructure tax expenditures — a concept that policymakers in both parties appear to support.

Some heavy hitters have already started advocating for reforming homeownership tax deductions.  The Bowles-Simpson and Rivlin-Domenici deficit reduction commissions and the Bush Administration’s Advisory Panel on Federal Tax Reform each proposed converting the mortgage interest deduction to a credit that would increase revenues and reach a broader share of low- and middle-income homeowners.  And the Obama Administration, most recently in its 2013 budget, has proposed capping the value of the mortgage interest deduction and other itemized deductions for high-income taxpayers.

Those changes could make homeownership tax expenditures more efficient and raise added revenues to reduce the deficit.  Directing a modest share of the savings to the renters’ credit could further improve the effectiveness and fairness of the nation’s housing spending.

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More About Barbara Sard

Barbara Sard

Sard rejoined the Center as Vice President for Housing Policy in 2011 after 18 months as Senior Advisor on Rental Assistance to HUD Secretary Shaun Donovan.

Full bio | Blog Archive | Research archive at

11 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. Dawn L. Heflin #

    How do I get renters credit? I am a renters and I am disabled and currently living on ssi I am low income.

  2. Jack Logan #

    Won’t the landlord simply raise the rent on those renters who regularly pay the rent even if it is more than 50% of income?

    • Barbara Sard #

      If the renters’ credit is capped by Fair Market Rents (FMR) based on market rents in individual metropolitan zip codes and non-metropolitan counties, as we have proposed, owners would not be able to inflate rents above market levels except in limited circumstances (such as when units are of lower quality or have fewer amenities than other nearby units, or are poorly located within the zip code or county, and consequently have market rents below the FMR).

  3. Samurai #

    It wasn’t renters who’s net worth got completely destroyed when the housing bubble burst, it was home owners; middle class home owners who have most of their wealth tied to the value of their home.

  4. Barbara Sard #

    To be clear, our proposal for a new federal renters’ tax credit does not rely on increasing the overall amount of income taxes collected. We are proposing to shift less than 5 percent of the tax breaks that now go to some homeowners – generally the wealthiest who don’t need a tax break to own a home – to help low-income renters. The federal government will spend about $250 billion in 2012 to assist families in meeting their housing costs, but this spending largely goes to people who don’t need help. The average household with an income of $200,000 or more received a housing benefit of $7,014 in 2010, nearly five times the average benefit of $1,471 received by households with incomes below $20,000 (most of whom get no housing assistance). About 2 million low-income renter households headed by elderly or disabled individuals pay more than half their income for housing. Housing that is affordable provides stability, which can benefit all of us, not just the families directly assisted, by reducing institutionalization and other health care costs and improving lifetime earnings.

  5. 6

    I receive the mortgage interest deduction. As a result, my housing costs are reduced by about $2000 per year.

    Here’s the thing. I don’t need that subsidy. My wife and I are doing okay without this misguided policy, thank you! For more on that visit:

    I’d much rather scarce tax resources be used to subsidize households and communities in need of investment. CBPP’s report advances a more balanced housing policy that will actually help communities thrive.

  6. Dave Thomas #

    It’s time to get the government out of the real estate market. It’s time for the government to reduce spending by getting out of the real estate market. It’s time to let the market finds it bottom as quickly as possible so we can get beyond the carnage of the financial meltdown that was directly caused by government interference in the real estate market.

    Where do individuals like this author get the idea that they posses the secret to the problems in the real estate market? Hubris is the operative word here.

  7. rob hone #

    by subsidising renters you are simply enriching the rich investors who own the underlying properties, making an already hot investment space even more lucrative with the promise of government backstopping on cap rates.

    • shmoe #

      The Big Rental companies will Pass along any tax increases, or increased demand will raise the rent and the poor will net nothing.

  8. 10

    I thought I’d just be reading an update on the report Cushing Dolbeare used to do (which was a great report). But this goes a few steps further.

    Not only do you show how tax expenditure subsidies far surpass direct subsidies and help those hardly in need of assistance. You talk about how additional policy goals could be achieved through a rent credit (e.g. improving educational outcomes, keeping families together — not forcing foster care).

    Thanks. I look forward to blogging about this report soon.

  9. Jennings #

    Oh yes, let’s give more money to those who are already on govt assistance from every angle. They don’t pay taxes already, they get the Earned Income Tax Credit (money for nothing), food stamps, welfare, housing assistance, etc etc etc. So sure, let’s pay them more of taxpayers money for RENTING. They are already living on those of us who PAY TAXES. This sums up the problem with big govt liberals in one little article.

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