Federal Assistance: Renters vs. Homeowners

Published by Michael Novogradac on Wednesday, April 27, 2011 - 12:00am

As Congress addresses the slow recovery and high unemployment rate, along with Tax Reform and resolving the future of the GSEs, there is considerable discussion as to the federal government’s relative support of homeownership versus rental housing. Over recent history, home ownership rates have been in the high 60’s, about a 2 to 1 ratio of homeowners to renters. (In the early 50’s the homeownership rate was in the high 50’s, or about 1.3 to 1 homeowners to renters.)

Within the tax code, we have done analysis several times over the years showing that tax code subsidies that benefit homeownership exceed those that benefit renters by a ratio of much more than 10 to 1. (See, for example Washington Wire, March 2005, and June 2006.)

In fiscal year 2009, according to a CBO analysis, the federal government devoted almost four times the amount of budgetary resources to supporting homeownership (about $230 billion) as it devoted to improving rental affordability ($60 billion). This study confirmed an extremely high tax code bias toward homeownership of more than 10 to 1. The CBO brief included direct spending as well, and found a more balanced advantage for homeownership of about 2 to 1.

I note that the CBO estimated the subsidy value provided to homeowners to Fannie Mae and Freddie Mac was about $43 billion in FY 2009. I think most would agree, given the current condition of Fannie Mae and Freddie Mac, the actual subsidy provided was much more.

So, what does this mean? If you want more proportional federal government support for rental housing in the tax code, on a revenue neutral basis, you need to cut homeownership tax expenditures by 1/3rd and quadruple rental subsidies.

If you want more proportional federal government support for rental housing in the entire budget, then you need to cut homeownership subsidies by more than 15% and raise rental housing subsidies by more than 60%.