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Overview of Federal Support for Housing 1 (November 2009)

handle is hein.congrec/cbo9423 and id is 1 raw text is: A series ofissue summaries from the Congressional Budget Office NOVEMBER 3, 2009 An Overview of Federal Support for Housing Summary and Introduction The federal government commits substantial resources to support housing and mortgage markets through a combination of spending programs and tax expenditures (that is, subsidies conveyed through reductions in taxes). During the crisis of the past two years, the budgetary commitment expanded-to about $300 billion in fiscal year 2009-from the placement into conservatorship in September 2008 of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) and the creation of new housing programs. This Congressional Budget Office (CBO) brief describes, in broad terms, the array of federal activities that support housing and the recent expansion of particular programs. Most of the federal government's support for housing is provided for homeownership (see Figure 1). In 2009, the federal government devoted almost four times the amount of budgetary resources to supporting home- ownership (about $230 billion) as it devoted to improv- ing rental affordability ($60 billion). The government supports homeownership by subsidizing the costs of owning a home (reducing down payments, mortgage insurance costs, and tax liability) and increasing the availability of mortgage loans. Until recently, the bulk of federal support for homeownership took the form of tax expenditures, which make it less expensive to own a home by reducing taxes for homeowners and investors. As a result of recent actions to address the crisis, the government now provides roughly equivalent amounts of support for homeownership through tax expenditures and spending programs. About 80 percent of the federal support for renters is provided by spending programs; the remainder is provided through tax expenditures. The federal government also shapes the housing and mortgage markets through regulation-as provided, for example, in the Truth in Lending Act and the Home Mortgage Disclosure Act. This brief categorizes 28 federal housing activities by type of support (homeownership or rental), mechanism (spending or taxation), and budgetary cost in 2009.1 Because much of the recent assistance is intended to be temporary, such costs are expected to decline as market conditions improve. Those costs are recorded in the federal budget using one of three accounting methods cash basis, present-value basis, or present-value basis adjusted for market risk (see Box 1). Annual spending amounts recorded in the budget can vary considerably depending on the method used to estimate them, and for some programs, they understate the full economic cost of the resources committed. Goals of Federal Support for Housing Federal housing policy has long aimed to increase the rate of homeownership and, to a lesser extent, make rental housing affordable for low-income families. The nation has made more progress on the former goal than on the latter. Homeownership rates increased steadily through- out the 1990s and early 2000s, peaking in 2004 at just under 68 percent of all households (see Figure 2 on page 4).2 However, the proportion of households paying more than 30 percent of their income for housing-an 1. Spending amounts are the amount of budget authority provided or estimated for 2009, unless otherwise noted. Budget authority is authority provided by law to incur financial obligations that will result in immediate or future outlays of federal government funds. Tax expenditure amounts are from the Joint Committee on Taxa- tion (JCT), Estimates ofFederal Tax Expenditures for Fiscal Years 2008-2012, JCS-2-08 (2008). This brief excludes programs that received budget authority of less than $100 million in 2009. It excludes four additional tax expenditures-the deferral of income from installment sales, the deferral of gain on like-kind exchanges, the new markets tax credit, and the credit for rehabilitation of his- toric structures-that support the production of homeownership units and rental housing. Although JCT estimates those expendi- tures, the amounts include tax expenditures from transactions involving nonhousing assets and are therefore excluded from this analysis. 2. Census Bureau, decennial census, long-form housing characteris- tics; and Census Bureau, Homeownership Rates by Race and Ethnicity of Householder: 1994 to 2008 Current Population Survey/Housing Vacancy Survey, Table 22.

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