Would A New Homestead Act Save Real Estate?
Friday, August 19th, 2011
Photo credit - alh1 & Flickr
The Homestead Act, passed in 1862, was one of the pivotal moments in the settling of the West. In the Homestead Act, settlers were offerered up to 160 acres of land provided they farmed the land for five years and made other improvements to their homestead. Through this Act, much of the western Great Plains was settled.
With the turmoil in today’s housing market, prehaps we need something as expansive as the Homestead Act to set things right. along those lines, Rep. Gary Ackerman [D. - NY] announced on Wednesday that he will introduce “Homestead Act 2″ in an effort to “reduce the housing glut and put Americans back to work.” Rep Ackerman’s bill has two parts;
- The first two million applicants to the program would be offered up to $20,000 matching subsidy as down payment assistance. This would originally be a loan from the Federal government, but one-fifth of the loan amount would be forgiven each year the owner-occupant stays in the home until the loan is repaid at the end of the fifth year.
- Additionally, there would be a 10-year exemption on rental income for the first one million homebuyers to purchase a single family home as a rental property.
The combination of these would, in Rep Ackerman’s opinion “spur the traditional housing market as the existing inventory overhang of housing is depleted. Over a million workers would be productive again.”
Would it work? Well, I see several advantages to this plan. First of all, by making the $20,000 a subsidy, it avoids the problem of the First Time Homebuyers Credit — that the money was needed at closing, not several months later. secondly, by making it a matching subsidy, it would encourage larger down payments, which will put the overall housing market on a firmer foundation.
Finally, I like the fact this bill recognizes that investors are a key part of pulling the market out of the doldrums. Too often investors have been seen as part of the problem, not part of the solution.
Representative Ackerman intends to file this bill after the summer recess. While the devil usually hides in the details, I hope Congress seriously looks at this legislation.
[Click here for Representative Ackerman's press release]
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