Renters Tax Credit Reduces Housing Cost Burden

Federal Assistance in Renters Tax Credit Directly to Tenants

The Terner Center for Housing Innovation at the University of California, Berkeley released a new policy paper proposing a tax credit for renters.

The Federal Assistance in Rental (FAIR) credit would assist low income renters in a manner similar to the Earned Income Tax Credit. The paper, titled The FAIR Tax Credit: A Proposal for a Federal Assistance in Rental Credit, examines the potential benefits and costs of three policy options and proposes areas for future research.

Housing ExpendituresUnder the “Rent Affordability” option, all renter households earning less than 80% of the area median income (AMI) and experiencing a housing cost burden, meaning they are spending more than 30% of their income on rent and utilities, would be eligible for the FAIR credit.

Eligible households would receive a refundable tax credit equal to the difference between 30% of their household income and the lower of either their gross rent or the Small Area Fair Market Rent (SAFMR). Fair Market Rents (FMRs) would be used in areas without published SAFMRs.

The credit would be provided directly to renters instead of to landlords, which would likely circumvent the challenge of income discrimination that sometimes occurs in the Housing Choice Voucher (HCV) program. Approximately 13.3 million households would receive an average monthly benefit from the credit of $457.

Of these households, 5.8 million would be entirely relieved of their housing cost burden and 7.8 million would experience a reduction in their burden because their current rent is higher than the SAFMR.

The Rent Affordability option would carry an annual cost of $76 billion.

The “Rent Reduction” option would function similarly to the Rent Affordability option, but all households earning below 80% of AMI would be eligible, regardless of their cost burden.

The “Composite” option is similar to the Rent Reduction option for households earning less than 80% of AMI, but includes an additional targeted component for extremely low income (ELI) households earning less than the federal poverty guideline or 30% of AMI, whichever is higher.

ELI renters not served by the targeted component would receive the same subsidy as in the Rent Reduction option. The Composite option would provide an average monthly benefit of $237 to approximately 15.1 million households.

Three million families would be entirely relieved of their cost-burdens, while 10.1 million would experience a reduction.

The Composite option would cost an estimated $43 billion annually.

FAIR Tax Credit: A Proposal for a Federal Assistance in Rental Credit

CBPP Analysis of Renters Credit

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