Tom Kelly: First-time incentives may help rate of home ownership

Nearly every month, there’s a new survey or opinion piece detailing how young Americans are putting off home buying at unprecedented levels. With the millennial generation, the home ownership rate has fallen to its lowest level since the U.S. Census Bureau started tracking the statistic by age in 1982. 

To help offset this dilemma, why not resurrect a $20,000 tax deduction for first-time buyers on all principal residences? If we don’t stimulate the bottom rung of the housing ladder, there will be no moving up or moving down – move-up buyers will be unable to “move up” to a bigger home, displacing empty-nesters who want to move down into a smaller space.

Why is an incentive needed? The home ownership rate in 2014 for Americans 35 and under fell to 36.2 percent, dropping from 36.8 in 2013. Broken down even further, Americans in the 25-29 age group had the biggest decline in home ownership rates at 33.3 percent, followed by 47.5 for the 30-34 age group.

The home ownership rate for all age groups has fallen to 64.8 percent, the lowest level since 1995. Dean Baker, co-director of the Center for Economic and Policy Research in Washington, D.C., said recently that high student loan debt and sluggish employment are added elements that are keeping many young Americans on the sidelines.

“The labor market for younger people remains pretty bad,” Baker said. “Obviously you’re worse off without a college degree, but for people with college degrees, if they have a regular job, often it’s not paying very well and often they are jobs that pay just as well for people who have just a high school degree. They also have a lot of debt. So it’s not surprising that people in their late 20s or early 30s are less likely to buy a home than what might have been the case 20 or 30 years ago.”

Let’s sharpen our creative pencils when it comes to student debt. Why don’t employers seeking top-notch talent now use a student-loan payoff as part of a recruiting package? For example, some teachers still have the opportunity of accelerating their student-loan payoff by working in a targeted area for a specific period of time. (A $50,000 loan could be forgiven if the teacher remains in the designated district for five years.) Employers could do the same, dangling the carrot of loan forgiveness if the employee stays more than five years.

The unemployment rate for those aged 20-24 is 12.4 percent, according to March data from the Bureau of the Labor Statistics. The unemployment rate for Americans 25-34 years old is 7 percent, compared to the national average unemployment rate of 6.7 percent.

“Those stories you hear about people in their 20s or early 30s living with mom and dad, those aren’t just stories, and if people don’t move out, they’re not going to buy a house because we’re still in the aftereffects of the worst financial crisis in 75 years,” said David Wessel, senior fellow of economic studies at the Brookings Institution in Washington, D.C.

Let’s review the tax credit available five years ago when the country tried to emerge from the national mortgage mess. What was the tax credit? Why did it boost sales?

The Internal Revenue Service defines a first-time buyer as anyone who has not owned a principal residence during the three-year period prior to the purchase. Hence, a first-time buyer does not necessarily have to be “young.”

For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter.

Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

In addition, first-time homebuyers must purchase the property from a source unrelated to them. For example, they cannot purchase the house from a spouse, parent, grandparent, child, or acquire the property by gift or inheritance and obtain the tax credit.

It’s time to sit back and review the real challenges and possibilities. If student debt is truly the main chuckhole on the road to homeownership, why not get serious and propose a few creative plans?