Washington, D.C.'s First-Time Homebuyer Tax Credit: An Assessment of the Program

Abstract

This study is the first, comprehensive assessment of the District of Columbia First-Time Homebuyer Credit program. This program is the only federal program that provides an income tax credit (up to $5,000) for targeted low/moderate-income families and individuals to purchase their first homes in a central city. The key findings indicate that: The DC homebuyer tax credit is very successful and popular. There was a total of 21,821 claims (in the amount of $76.7 millions) filed for the tax credit during the 1997-2001 period. The DC's first-time homebuyer rate stemming from this program was estimated at 67 percent, or 16 percent higher than the central city average in the nation (51%) and 27 percent higher than the national avearge (40%). The largest cluster of the credit beneficiaries were low-income homebuyers or those with incomes between $30,000 and $50,000. Moreover, the DC homebuyer tax credit program contributed the house price appreicaiton by about 4.9 percent per year, after adjusted for housing and neighborhood characteristics and other factors. Larger effects on house prices are observed in low/moderate-income and minority neighborhoods. The homeowners of (lower-priced) townhouse/condos also experienced better appreciation than the owners of (more expensive) single family detached units. Furthermore, the program helped stabilize distressed neighborhoods, increase the overall homeownership rate, drive up homeowner housing supply through new construction and conversion of rental into owner units, and reduce vacant housing units for rent in the District of Columbia.