Broad Support Given Sweeping Bill on Housing : Experts Divided on Measure’s Impact on Orange County Buyers

WASHINGTON —  Sen. Alan Cranston (D-Calif.) and other senators introduced sweeping legislation Wednesday that would make home ownership easier for first-time buyers and provide about $4.1 billion to state and local governments to increase affordable rental housing.

The bill, likely to be the most significant housing proposal to come before the 101st Congress, has drawn bipartisan support and stands a good chance of being embraced by the Bush Administration, despite its cost, Cranston said.

“It is imperative that we reverse a decade of neglect in housing policy in this country,” he said during a press conference, flanked by the bill’s main Republican co-sponsor, Sen. Alfonse M. D’Amato (R-N.Y.). “It’s deplorable that young families, even with two wage earners, have been priced out of housing markets across the nation.”

Cranston conceded that the Administration has yet to take a position on the bill but noted that Secretary of Housing and Urban Development Jack Kemp was “very enthusiastic” about the proposal in recent meetings, especially sections designed to bring young, two-paycheck families into the home ownership market for the first time.

“I think there’s a new attitude in this Administration toward the government’s role in housing,” D’Amato added. “You’re going to see an Administration that looks to work with Congress on this issue, to get something done.”

Under the legislation, which is co-sponsored by 25 senators, the federal government would allow home buyers to use funds in their individual retirement accounts or 401(k) retirement plans to make down payments on homes. The benefit would be restricted to people who have not owned a home in 3 years.

Also, the bill would remove the current $101,250 limit for mortgages under which buyers may participate in the Federal Home Administration mortgage assistance program. Instead, purchasers could qualify for federal assistance on mortgages that are no more than 95% of a state’s median home sales price.

In California, which has some of the highest housing prices in the nation, the FHA ceiling would be raised to $155,000, enabling more families to qualify for assistance, Cranston said.

D’Amato, citing studies by private housing experts, said 500,000 families across the country could have been helped to buy homes in 1987 had the new provisions been in effect.

In Orange County, where the average price of a house is the highest in the nation and most people are shut out of the market, experts were divided over whether raising the FHA loan limit would help.

“This could bring thousands of buyers back into the market who’ve simply given up,” said Kelly McDermott, vice president of housing consultant Market Profiles in Costa Mesa.

“After all, you’re talking about a county where most of the people who own a house couldn’t afford to buy it now.”

But Ken Agid of the Marketing Department consulting firm in Irvine said the legislation doesn’t address the major problem in Orange County and the state: There simply aren’t enough houses to go around.

“The crazy thing is that this allows more people to get at the end of the line of people waiting to buy houses,” Agid said.

“The underlying problem isn’t the inability to buy a house; it’s the inadequate supply.”

A second goal of the bill would be to expand the nation’s dwindling supply of affordable rental housing, especially for lower-income people. Under the measure, the federal government would provide $3 billion to state and local governments that are sponsoring housing programs in concert with private developers.

The legislation would distribute these funds through a new HUD agency called the Housing Opportunity Program. To qualify, states and local governments would be required to match 25% of the federal funds they receive.

Under the program, new rental housing projects would have to reserve 20% of their units for low-income people, defined as those whose rents are at least 30% of their income. The bill also would provide $884 million in new rent subsidies to low-income families. States would be given greater freedom to distribute these subsidies according to local needs, Cranston said.

A final provision would centralize responsibility for especially vulnerable groups--such as impoverished seniors and the homeless--in one HUD office, and also give them more money. The legislation, for example, would allocate an additional $291 million to provide permanent housing for the homeless.

D’Amato and others said the bill’s $4.1-billion cost would not conflict with efforts to cut the nation’s estimated $130-billion budget deficit. Under congressional budget procedures, lawmakers would be required to pass a bill authorizing the new housing programs, and then pass separate legislation actually appropriating the funds.

“No one is saying we’re going to get all of this money in the first year,” D’Amato said. “But the important thing is to pass the bill, . . . get the programs in place and then fight for the money later on. You take these things one step at a time.”

Times staff writer Michael Flagg in Orange County contributed to this report.