In a recent meeting with The Baltimore Sun Editorial Board, House Speaker Adrienne A. Jones mentioned an intriguing idea to help young Maryland residents purchase their first place of residence. It would involve allowing qualifying individuals to save money for a down payment through a tax-free savings account. In theory, such accounts would work similarly to 401(k) retirement savings accounts or 529 college savings funds with the money deposited, and the interest earned, not subject to state income taxes. Thus, an individual or couple could save, bit by bit, year by year, for the house or condo of their own with a modest assist from the state of Maryland.
Speaker Jones raised this possibility in the context of improving equity and inclusion in communities of color. After all, the COVID-19 pandemic has only exacerbated racial and class disparities in this country and this state. As a 2020 Abell Foundation report observed, homeownership in Baltimore’s Black community has been falling for years. Long before the virus hit, the city’s homeownership rate fell from 51% to 47% between 2007 and 2017, while the rate among African Americans living in Baltimore declined from 45% to 42% during the same period. This follows a nationwide trend.
Encouraging homeownership is more than a feel-good goal. Study after study has demonstrated that homeownership boosts personal savings, improves communities as people take greater responsibility for their surroundings, and ultimately reduces housing costs. That last advantage is notable as the COVID-19 pandemic has not only raised the risk of eviction, it’s also boosted home prices across the country. For many renters, however, the financial stumbling block of first-time home buying is twofold — qualifying for a mortgage and coming up with a down payment of 5%, 10% or 20% of the property’s value.
That’s where a tax-free savings account might prove useful. In a handful of other states, similar programs have already been put into effect. In Oregon, for example, an individual can put away up to $14,000 per year to a maximum of $50,000 lifetime. In Minnesota, the limit is twice that for couples. Mississippi has no lifetime limit but caps the annual savings benefit at $2,500 per year. In all, seven states have adopted some form of tax-advantaged first home savings plan including the modest one in neighboring Virginia where the tax break is extended only to interest earnings, not to deposits.
Critics will contend that $50,000 in a bank account is far beyond the aspirations of truly low-income individuals, and the point is taken. But one could say the same of college savings plans that allow more affluent families the opportunity to put aside money for their children. Yet, if greater homeownership is the goal, don’t middle-class households deserve some assistance, too? Maryland already has programs in place to help disadvantaged first-time homebuyers qualify for mortgage assistance (the Maryland Mortgage Program run by the Department of Housing and Community Development, for example, includes grants or loans for down payments and closing costs). There’s surely no reason to create a new tax loophole for the truly rich, but tax-free savings that extends to the middle class or even upper middle class seems like a reasonable price to pay for the common good.
Needless to say, such efforts would be far more effective if the federal government had a first-time homebuyer savings plan, too. It does not. Considering how small the current earnings on the typical bank savings account are right now — one-half of 1% is about standard — a plan that only spares Maryland savers the state and local income tax on earnings might have little effect. But it also might be a foot in the door for a more substantial plan down the road to deduct deposits as well and maybe even incorporate a federal tax break if Congress and President Joe Biden move in that direction.
Would the creation of a first-time homebuyer savings account transform Baltimore or Maryland into a homeownership paradise? The devil is in the details, but probably not. At best, it’s only one small part of a long-term strategy (including driving down the city’s fierce property taxes) that could turn the dream of homeownership into a reality for more people and make Baltimore and the rest of Maryland a better place to live for all. As such, it’s worth exploring. Like retirement and a college education, there’s too much public good in offering tax-free savings toward this specific goal to let the opportunity pass.
The Baltimore Sun editorial board — made up of Opinion Editor Tricia Bishop, Deputy Editor Andrea K. McDaniels and writer Peter Jensen — offers opinions and analysis on news and issues relevant to readers. It is separate from the newsroom.