Bush Proposes $6.8-Billion Housing Plan

President Bush on Friday unveiled a $6.8-billion housing proposal built around government grants, tax credits--and a proposal made a year ago by Michael S. Dukakis. The plan is intended to help low-income families buy homes, to ease the way for first-time home-buyers to make down payments and to provide support for the homeless.

In his first major presidential speech on the nation’s housing crisis, Bush said that the program addresses “the full range of housing concerns: from shelter for the homeless to affordable housing for low-income families, to initiatives that open access to expanded job opportunities and help millions more Americans own their own homes.”

The proposal, which Bush presented in broad outline to the annual meeting here of the National Assn. of Realtors, reflects renewed interest within the government in the nation’s housing crisis after the Ronald Reagan Administration’s redirection of federal funds away from housing programs.

However, a key element of the plan--making permanent a now-temporary program granting tax credits to encourage rehabilitation of rental housing--is threatened because Bush would attach it to his controversial and so-far unsuccessful effort to lower the capital gains tax.

The credits would cost the federal treasury $2.6 billion in lost revenue, Jack Kemp, secretary of the Department of Housing and Urban Development, told reporters aboard Air Force One as Bush flew here from Washington.

Under another element in the President’s plan, up to $10,000 could be withdrawn from an individual retirement account to use as a down payment. The purchase price of the house could be no more than 110% of the average home price in the area.

“You all know about families working to buy that first home. Well, they deserve our help, and they’re going to get it,” Bush said. “I will ask Congress to enact legislation allowing first-time buyers to draw, without penalty, on IRA savings as a down payment for that first home.”

Orange County has become one of the nation’s most impenetrable markets for first-time home buyers. Home prices are among the highest in the nation, hitting a median $260,000 in October, according to one survey.

The IRA proposal is a near copy of one advanced a year ago by Dukakis, the Massachusetts governor, who ran against Bush last year. On Oct. 10, 1988, the Democratic presidential candidate announced his housing proposals, saying that “Mr. Bush has no housing program. He has no solutions. He has no new ideas.”

Under the plan Dukakis unveiled that day, the government would have permitted money to be withdrawn from IRA and 401(k) retirement funds without penalty, if the funds were used for first home purchases, and down-payment requirements for federally insured mortgages would have been lowered. The $10,000-limit that Bush would impose also was included in the original Dukakis plan.

Under current law, money in the IRA and private pension programs known as 401(k) plans cannot be withdrawn before the saver reaches the age of 59 1/2 except in cases of specific hardships or if a sharp penalty is paid. Taxes on the earnings are deferred until the principal and interest are withdrawn.

Michael L. Meyer, managing partner at accountants Kenneth Leventhal & Co.’s Newport Beach office, said the IRA proposal should enable more people to buy a house, even in ultra-expensive Orange County.

“It’ll make a difference in condominiums under $200,000, for instance,” he said. “With a 5% down payment, that’s your $10,000 right there.”

The government grant program--which would total $2.15 billion in federal money over three years, if it is approved by Congress--is intended to help low-income families purchase homes. The money would be used by states and nonprofit organizations to rehabilitate and purchase housing but not for new-home construction.

The money would be aimed at reconstructing public housing, vacant buildings and foreclosed properties held by the government, the White House said.

The fact that these housing units are vacant or have been foreclosed “sends a message about how attractive they are,” according to Ray Struyk, a senior research associate at the Urban Institute, a private, Washington research organization specializing in social issues.

“Saddling the poor with units in such poor shape and poor location--they are doomed in the first place,” he said in a telephone interview.

Struyk, who studies housing issues for the Urban Institute, said that the IRA proposal has been considered by various groups for several years.

“There’s some sentiment it won’t make much difference,” he said. “It doesn’t hurt, but it’s not clear it will push a lot of people over the margin into home ownership.”

At the heart of the debate over the practicality of the IRA proposal is whether those who are scraping to make down payments on houses are likely to have been able to put money into the retirement savings accounts from which they would draw.

The Bush program also includes:

Housing vouchers, intended to help eligible low-income families meet the costs of escaping public housing projects for more preferable housing in their communities.

A commission, to be appointed by Kemp, to study government regulations and red tape “that add unnecessarily to the cost of housing,” and, Bush said, to recommend how such barriers to affordable housing can be removed.

Elimination of the capital gains tax in 50 inner-city “enterprise zones” around the country, to encourage business investment in the poorest neighborhoods. The capital gains tax is paid on the earnings produced by stocks and other investments.

A program, funded by $728 million in federal money and matched by states, local communities and nonprofit organizations, to pay for mental health and other services supporting the homeless, in addition to the provision of shelter.

In Orange County, 1,000 people are homeless on any given day, according to a RAND Corp. estimate, and over the course of a year about 4,000 will be without a place to sleep. As elsewhere, the county’s shelters are crowded and overburdened.

“The real answer for the homeless--those with mental problems or dependent on drugs or alcohol--is shelter plus care,” Bush said.