Zillow says $15,000 tax credit will push renters ahead

If passed, first-time homebuyer tax credit could push some renters 14 years ahead toward homeownership

A refundable, advanceable tax credit of up to $15,000 for first time homebuyers, similar to the one suggested by President Joe Biden, could catapult millions of renter households into first-time homeownership, a new Zillow® analysis suggests.

While Congress has already passed billions in aid over the past year to provide homeowner and renter relief, housing will remain a key area of focus through 2021 — especially as Congress continues to grapple with decreasing affordability. 

Zillow research found that with a 3.5% down payment on a 30-year mortgage with a 3% interest rate, about 9.3 million renter households in the U.S. (27.4%) would spend less than a third of their income on  the monthly payment for the median home sold in their metro in 2020. An advanceable tax credit would remove for them what two thirds of renters cite as the single biggest barrier to homeownership—saving for a down payment. Other hurdles include qualifying for a mortgage and job security.

A tax credit could be even more beneficial to renters in relatively more affordable metros, like Pittsburgh (40.5% could afford a median mortgage), Cincinnati (39.7%), Cleveland (39.0%), and St. Louis (38.5%). Costly Californiametros like Los Angeles (10.1%) and San Jose (12.1%) have some of the smallest share of renters that could afford a mortgage, but the program would still significantly impact thousands in those regions.

“Legislation that reduces barriers to homeownership could allow millions of renter households to finally enjoy the stability and wealth-building owning a home can provide,” said Zillow economic analyst Alexandra Lee. 

Lawmakers have floated ideas surrounding the introduction of legislation that would create a refundable, advanceable tax credit of up to $15,000 for first time homebuyers, similar to first-time homebuyer credits approved by Congress during the Great Recession. Unlike those credits, the recently proposed advanceable tax credit could be used at the time of purchase, which could jumpstart potential homebuyers lacking down payment savings.

Nationally, renter households are estimated to save 2.4% of their income each year. At that rate it would take a typical renter about 14 years to save $15,000. Considering the low rates at which renters are able to save, a $15,000 advanceable credit could push them years ahead toward home buying, potentially covering the entire down payment. In 2020, a 3.5% down payment on a typical home sold was less than $15,000 in 40 out of the largest 50 U.S. metros. In 30 out of the largest 50 metros, even a 5% down payment on the typical U.S. home would be completely covered by a $15,000 tax credit.

However, such a tax credit could also have some unintended consequences. Down payment assistance does not completely help those who face additional  hurdles to enter homeownership. Therefore, even though a tax credit for first-time homebuyers would likely stimulate minority homeownership, it could still disproportionately benefit white and Asian Americans who are better positioned to buy because of better access to credit and higher incomes.  Also, recipients could only benefit from the credit if enough homes at affordable price tiers are available on the market. Competition for homes remains fierce with homes selling at a historically fast pace. This strong demand, coupled with tight inventory, is contributing to rapidly rising prices, which could also inadvertently affect the utility of the tax credit for those who need it the most.

Across the largest 50 U.S. metros, white renter households make up a significantly larger share of those that could afford the monthly mortgage payment. Asian households also fare relatively well — in almost all metros (48 of 50 largest) they make up a slightly larger share of potential buyers. Conversely, Black (49 of 50 metros) and Hispanic (42 of 50 metros) renter households make up a disproportionately smaller share of potential buyers. 

“Policies targeting the systemic inequities in our financial system—including reforming the credit reporting system —could help disadvantaged households get their foot in the door and close the racial homeownership gap,” said Lee.

Proposed $15,000 Down Payment Assistance Tax Credit Impact on Renter Households *

(Table ordered 
by market size)
3.5% Down 
Payment on 
Typical Home
Total Monthly
Payment On 
Typical Home **
Share of 
renters that 
could afford 
a monthly 
Income of 
New York, NY$15,400$2,61222.4%$57,300
Los Angeles-Long Beach-Anaheim, CA$24,850$3,67110.1%$58,000
Chicago, IL$8,820$1,62133.0%$46,000
Dallas-Fort Worth, TX$10,080$1,89026.5%$50,000
Philadelphia, PA$8,855$1,54931.3%$42,836
Houston, TX$8,995$1,71527.4%$45,331
Washington, DC$15,225$2,35131.9%$70,000
Miami-Fort Lauderdale, FL$10,850$1,85425.0%$45,071
Atlanta, GA$9,205$1,48737.6%$48,000
Boston, MA$17,500$2,83118.1%$59,000
San Francisco, CA$30,625$4,52216.3%$85,000
Detroit, MI$6,825$1,21036.9%$37,400
Riverside, CA$14,245$2,23820.9%$50,000
Phoenix, AZ$10,973$1,64830.9%$49,618
Seattle, WA$18,725$2,89220.3%$65,000
Minneapolis-St Paul, MN$10,500$1,76127.1%$46,200
San Diego, CA$21,910$3,26812.8%$60,891
St. Louis, MO$6,755$1,17638.5%$38,000
Tampa, FL$8,698$1,48631.4%$42,770
Baltimore, MD$10,325$1,64533.7%$48,446
Denver, CO$15,750$2,37620.7%$58,000
Pittsburgh, PA$6,230$1,10440.5%$38,466
Portland, OR$14,963$2,35519.4%$54,000
Charlotte, NC$9,345$1,47735.6%$46,000
Sacramento, CA$15,768$2,42817.3%$51,000
San Antonio, TX$8,642$1,58727.3%$42,803
Orlando, FL$9,520$1,58530.3%$45,710
Cincinnati, OH$6,650$1,15339.7%$39,349
Cleveland, OH$5,425$1,00139.0%$34,811
Kansas City, MO$8,488$1,47131.4%$43,200
Las Vegas, NV$10,675$1,61930.6%$46,000
Columbus, OH$7,525$1,35635.5%$44,400
Indianapolis, IN$7,403$1,21236.6%$40,000
San Jose, CA$39,900$5,82712.1%$97,821
Austin, TX$12,250$2,18623.1%$55,000
Virginia Beach, VA$9,013$1,42838.9%$46,865
Nashville, TN$10,773$1,68026.7%$47,163
Providence, RI$10,990$1,87522.1%$38,965
Milwaukee, WI$7,175$1,28835.1%$40,000
Jacksonville, FL$8,855$1,46832.0%$42,800
Memphis, TN$6,592$1,14237.4%$36,203
Oklahoma City, OK$6,633$1,16537.3%$38,000
Louisville-Jefferson County, KY$7,000$1,14335.5%$35,876
Hartford, CT$8,575$1,59029.4%$41,000
Richmond, VA$9,450$1,46230.7%$42,000
New Orleans, LA$7,665$1,28134.2%$37,000
Buffalo, NY$6,125$1,18332.1%$33,959
Raleigh, NC$10,535$1,65627.9%$44,600
Birmingham, AL$7,175$1,10335.0%$34,705
Salt Lake City, UT$12,950$1,93624.5%$50,001

* Data in chart assumes a 3.5% down payment 
**Includes insurance and property tax.

1 the minimum required for an FHA-insured mortgage 

2 Assuming no more than 30% of their income is spent on housing


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