First-time homebuyer assistance has reemerged as an important policy issue in the wake of rising housing prices and attention from presidential candidates. The most prominent proposal is a plan by Vice President Harris to provide $25,000 in downpayment support for first-time homebuyers. To some, these proposals are a welcome policy for increasing homeownership rates and addressing rising housing costs, while critics contend that they will simply boost the price of housing and that subsidized homeownership may not be justified in the first place.

Why Provide First-Time Homebuyer Assistance?

The case for taxpayer first-time homebuyer assistance reflects the widespread popularity of homeownership as an essential element of joining the middle class, as well as particular concern about the inability of younger first-time homebuyers to afford a home. Policymakers often assert that homeownership is a goal in and of itself and should consequently be encouraged through tax-based subsidies or other means. Indeed, proponents of homeownership argue that it better-commits residents to the well-being of their communities and the maintenance of the home itself, and it may also enable greater wealth accumulation.

An additional justification is that housing assistance is necessary to offset increasing housing costs, which have risen much faster than the rate of inflation since late 2022. From this perspective, first-time homebuyer assistance complements other approaches, such as expanding the supply of homes, which would simultaneously address the rising cost of housing. This assistance could also offset some of the reductions in tax-based support for homebuyers legislated through the Tax Cuts and Jobs Act (TCJA) of 2017—including a higher standard deduction, a cut in the maximum amount of mortgage debt on which incurred interest can be deducted, and a $10,000 cap on the deduction for state and local taxes such as property taxes, all of which contributed to a decline in itemized housing deductions. The TCJA also reduced the per-dollar value of housing deductions through lower income tax rates.

Read the full article about first-time homebuyer assistance by Ben Harris and Liam Marshall at Brookings.