1st-Time Home Buyers’ Bill Drafted : $3.1-Billion Proposal by Cranston Would Also Aid Elderly

Saying that the time is ripe for a new federal push on affordable housing, Sen. Alan Cranston (D-Calif.) has drafted a $3.1-billion proposal that would make first-time home ownership easier for young families, expand federal housing aid to local governments and help preserve the nation’s dwindling stock of economical rental housing.

Cranston will unveil his proposal today in a speech to the Corporate Fund for Housing in Los Angeles, providing the first glimpse of what is expected to be one of the major new social initiatives to come before the 101st Congress.

Cranston, assistant majority leader and a member of the Senate Banking, Housing and Urban Affairs Committee, believes that he can attract strong bipartisan support for the bill when it is introduced, according to an advance copy of the speech.

“Housing affordability is a growing problem not just for the poor but also for young working families, for the elderly and for many others who are not wealthy,” Cranston says in the text. “We perhaps have a better opportunity now than at any time since the 1940s to reframe national housing policy.”

Being Fine-Tuned

Although the legislation is still being fine-tuned, its general outlines are clear. Much of the bill is intended to address the problems of young families who, despite two incomes, cannot afford to purchase a first home in expensive markets like Los Angeles, Orange County and the San Francisco Bay area, a Cranston aide said.

A key provision would raise the current $101,250 limit for mortgages on which home buyers may participate in the Federal Home Administration mortgage assistance program. Under the program, buyers whose mortgages fall under the limit could qualify to make down payments of 3% to 5% on their homes, instead of the higher percentage generally required. While no new proposed limit has been set, the Cranston aide indicated that it would be raised enough to “make a real difference” in Southern California’s costly housing market.

A second benefit in the bill would permit first-time home buyers who have individual retirement accounts or 401-K retirement plans to use the money for down payments on a home without paying taxes for withdrawing it.

“This wouldn’t be considered a withdrawal. . . . It would just be considered another form of investment,” the aide said. “You would, in effect, be investing it in a home, and the money used toward the down payment would have to be repaid when the home is sold.”

‘Partnership’ Requires Funds

Housing aides to Cranston said that these two provisions would not require direct federal expenditures. However, an ambitious new “Housing Opportunities Partnership” program in the bill could cost about $3.1 billion.

Cranston conceded that finding new federal money to pay for the legislation is “the major problem,” given the nation’s $155-billion budget deficit. But he said there is reason to believe that Bush “would support something,” even though he has yet to outline his own housing strategy.

The $3.1-billion program would distribute funds to state and local governments, encouraging them “to take the long view of their housing needs. . . . It should invigorate public-private partnerships in housing production and rehabilitation,” Cranston said in the speech text.

About 80% of the funds would be distributed among states and local governments and the rest would be given out through special incentive grants. Each locality would be encouraged to draft its own housing strategy, which could range from providing lower interest rates for certain builders or home owners, to writing down the land costs for developments of affordable housing.

Special Housing Needs

Other provisions of the bill would create new divisions within the Department of Housing and Urban Development to focus on the preservation of affordable rental housing, the dwindling stock of federally assisted but privately owned public housing, and the special housing needs of senior citizens, the disabled and the homeless.

The latter would include housing developments that provide a range of human services, such as medical care, food preparation and job counseling in addition to simple shelter, a Cranston aide said.

“We’re basically saying that for many of these groups, shelter is more than bricks and mortar,” the aide said. “Instead of turning their back on this problem, we want HUD to begin training people who recognize the need.”