- The Washington Times - Friday, June 14, 2002

When government gets involved in real estate, it usually messes up things. Actions that are "fair" and "right" words that, in the mouths of many in public service, do not mean the same thing you or I would believe are fair and right don't necessarily make good business sense.

On the other hand, property owners do pretty well from the exemptions and benefits afforded them by tax deductions, property depreciation and other financial gains enjoyed through real estate ownership and investment.

Nevertheless, a new study released by the Millennial Housing Commission could bring about some good things for investors, developers, renters and homeowners alike. The commission, established by Congress in 1999, was charged to:

• Look at the importance of housing to the national economy.

• Investigate various methods of increasing the involvement of the private sector in providing affordable housing.

• Determine whether existing federal programs work well or need to be revamped or eliminated.

After almost three years, the commission has begun touting its report to members of Congress, hoping it will bring about substantial policy changes to increase homeownership in the United States and foster affordable housing.

The commission is calling for implementation of new tools as well as the reforming and streamlining of existing programs. Some of the new tools could be quite interesting if they come to fruition.

For instance, investors currently must pay large taxes on their gain once they sell a property and take the money out of it. Section 1031 in the IRS code allows them to defer their tax payments on capital gains and roll the money into another real estate purchase, thus reducing their tax bill. Once they finally sell the property to "cash out," the taxes they pay are hefty.

To enhance preservation of affordable housing units, the commission recommends that Congress "enact a preservation tax incentive that would provide tax relief to encourage sellers to transfer properties to 'preservation entities' committed to preserving the stock as affordable housing."

If an investor in affordable housing knew he could sell the project to an affordable-housing group without getting bitten by high taxes, that definitely could be an incentive to keep the housing in the hands of those who need it most poor and low-income renters.

Another idea that may need more massaging but has merit is that of providing financial subsidies for construction of housing for extremely low-income renters. This would be for households with incomes lower than than 30 percent of the area's median income. Recipients in a community with a median income of $50,000, for example, would have to make less than $15,000 per year.

The subsidy would be an outright grant to the family. My rework on this idea would be to have the buyer contribute something. The idea of ownership is that the buyer has "bought" a home and is proud to own it. Giving a condo or house to someone removes the concept of ownership. Many of those who receive handouts expect more handouts later perhaps when the water heater breaks or the dishwasher causes water damage. By paying for a portion of the house, they have participated in the purchase of the unit and should feel that they must take care of it themselves.

In addition to the above grant program, one of the ideas under the commission's heading of "streamlining existing programs" is establishing a work requirement linked to housing assistance. MHC Executive Director Conrad Egan mentioned during his presentation on the report at a Fannie Mae housing conference last week that this was a "controversial recommendation among the commissioners." Fortunately, it made it into the final draft.

"Through a combination of work requirements and supportive services, [federal policy should] move assisted families up and out of assisted housing units and reduce the disincentives to work and marriage," the study says.

The commission's report has some good ideas and some not-so-good ideas. You judge for yourself the full report, including an online Power Point presentation, is on the group's Web site (www.mhc.gov).

M. Anthony Carr, director of communications for the Northern Virginia Association of Realtors, has written about real estate for more than 12 years. Reach him by e-mail ([email protected]).

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