The President's Commission on Housing recommended yesterday that the federal government replace its main programs for subsidizing construction of low-income housing with a new system for giving needy individuals direct rent subsidies.
At the same time, the commission would limit the assistance to the poorest families, those with incomes of no more than 50 percent of their area's median income. Currently, those with incomes up to 80 percent of the area median are eligible for federally assisted housing. Half of the cases in a group fall below a median and half above.
The new direct assistance would be designed to replace the current Section 8 housing program for low-and moderate-income persons and the Section 202 program for the elderly and handicapped.
These programs, under the Department of Housing and Urban Development, subsidize housing construction and rehabilitation through payments to builders and developers. HUD commits itself to subsidizing the rents of low-income tenants in the Section 8 housing for 30 years.
Direct payments "would provide tenants with a greater range of housing choices and would require public housing projects to compete with private housing suppliers for tenants," the housing assistance proposal adopted yesterday said.
To promote more building where needed, the advisory group is urging that housing construction be added as an eligible use for community development block grants.
The commission also indicated that it wants to cut back on Federal Home Administration mortgage insurance programs and turn over as much of their functions as possible to private mortgage insurers.
Private mortgage insurers have argued that they can take over most of the FHA insurance functions, but home builders, mortgage bankers, and savings and loan officials have predicted that a reduction in FHA loan guarantees would mean even less mortgage money and fewer home starts than in the current severely depressed market.
Though moving in the direction of a major cutback in FHA insurance programs, the commission also noted that the federal programs may be necessary for parts of the housing market that the private sector can't, or won't, serve. These could include high-risk housing loans, such as graduated-payment mortgages or those for low-income or inner-city housing, a commission staff aide said.
While the commission's recommendations are peppered with free-market philosophy, some new kinds of federal assistance in the form of tax incentives are being proposed or considered.
The group will suggest a 15 percent investment tax credit for rehabilitating homes not now eligible for the credit. It also is considering a tax exemption on savings accounts used by would-be home buyers to save for a down payment.
The commission made no recommendation on the controversial issue of tax-exempt mortgage revenue bonds used by states and local governments to provide below-market financing for home loans, but it outlined several options for continuing federal assistance for local housing bonds. These could include continuing the tax exemption on the bonds or making a federal payment to subsidize taxable bonds.
The commission is preparing an interim report on housing, due on Oct. 31.