Desirability of Individual Housing Accounts

摘要

Proposals to set up tax - deferred individual housing account (IHA's) for first - time buyers should be abandoned because they are targeted to the wrong segment of the housing market and are less efficient than either a tax credit or expanded use of mortgage insurance. In theory, IHA's -- accounts at an insured depository institution whose contributions and interest earned are tax deductible -- will increase the speed at which a downpayment for a home is accumulated. This analysis used Annual Housing Survey data on income and household characteristics of all households and recent movers. It also examined the indirect impact of IHA's by simulating their use by households through a partial equilibrium flow of funds model of household portfolios. Capital constraints did not appear to be a problem in the housing market, although evidence was mixed. Restrictions applied to IHA's mean that a household would need at least 5 years to acquire sufficient funds for an average downpayment. Furthermore, households can fully use IHA's only by saving at very high rates. For example, full use of the most liberal IHA requires a savings rate of between 20 and 33 percent of the median household's income. Finally, IHA's provide little additional funds to the mortgage market and generate tax revenue losses. Thus, the IHA would be most useful to upper income groups whose homeownership rates are extremely high and who have the least capital restraints. Major alternatives to the IHA are increased use of low downpayment FHA loans and converting the proposed deduction to a refundable credit. Footnotes and tables are supplied.