"Homestead: Act 2"

Ackerman to Introduce "Homestead: Act 2" to Reduce the Housing Glut and Put Americans Back to Work and Spur the Economy

August 17, 2011

Arguably, the greatest government act to grow the country and the economy was the Homestead Act of 1862. Congress gave those who took it 160 acres to have as a homestead. The results were spectacular.

U.S. Rep. Gary Ackerman (D-NY) announced today that he will introduce “Homestead: Act 2,” a 21st Century Homestead Act to reduce the housing glut AND put Americans back to work. The bill would incentivize investments in real estate, encourage self-sustaining growth in the depressed housing-market and help clear the inventory of over three million of the unsold existing homes. The weak housing market has been a leading drag on the economic recovery.

The “Homestead: Act 2,” which Ackerman plans to introduce when Congress returns from its August recess, would take an innovative approach by offering homebuyers incentives to invest in the beleaguered real-estate market.

First, in order to decrease the glut of three million of the existing unsold, vacant, often-blighted and foreclosed properties that are currently impeding economic recovery across the country, the Act would offer the first two million creditworthy borrowers down-payment assistance in the form of a matching subsidy up to $20,000 for a down payment to eligible single-family homebuyers. This down-payment subsidy would be a loan to the owner-occupier, one-fifth to be forgiven in each of the first five years of owner-occupancy. This subsidy would provide a critical boost to the housing market at a time when so many homes are "under water."

Second, the Act would provide a 10-year tax exemption on rental income for the first one million individual homebuyers who purchase existing single-family homes as rental properties. This valuable exemption would further stimulate the real-estate market and occupy otherwise vacant, deteriorating properties that depress entire neighborhoods.

In addition, each of these incentives — two million homes for families to live in, one million homes for investors to rent out — would help spur the traditional housing market as the existing inventory overhang of housing is depleted. Over a million workers would be productive again.

Third, to help alleviate the cost of these programs, the bill would utilize currently unrealized revenue that would result from leveraging the first $500 billion of the estimated $1.2 trillion in idle capital that U.S. companies have sitting off shore and incentivizing those companies to bring the money home by reducing the corporate tax rate on repatriated earnings to 10 percent. That revenue would cover the cost of the program.

“Clearly, ‘Homestead: Act 2’ would help to eliminate quickly the overhang glut of the housing market, putting two million owners in homes and inspire the purchase of an additional one million homes by investors who will rent them out, and enjoy tax-free rental income for 10 years,” said Ackerman. “This would clear the way for new housing starts, and put millions of Americans back to work. It would incentivize corporations to bring their cash cheaply back into the United States. In addition, the newly emancipated billions would further spur the economy. Everybody wins.”

The legislation was inspired by Carl Goldsmith, Senior Vice President of Delta Asset Management (a member of BMO Global Asset Management) and Ed Yardeni, President of Yardeni Research, Inc.