The Department of Housing and Urban Development issued the following statement last week:
A proposed flat tax on Americans' income would be detrimental to housing and homeownership, according to Nicolas P. Retsinas, assistant secretary for housing and a federal housing commissioner at HUD.
"President Clinton's national homeownership strategy is on track to create six million new homeowners by the year 2000," Mr. Retsinas said. "But a flat tax could be a real setback for this effort."
Under a flat tax, homeowners and landlords no longer would be able to deduct mortgage interest or property taxes from their federal income tax. Mr. Retsinas said the tax would be harmful in several ways:
* Homeownership rates would likely decline. Eliminating the deductions would increase the annual cost of owning a house, removing one of the major incentives for buying a home. As renting became cheaper than homeownership, more people would choose to be renters. Consumers would purchase fewer new homes, and when they did buy, would choose smaller homes.
* Because buyers would not be willing to pay as much for homes, a flat tax would result in a substantial decline in the market value of existing homes and in the wealth of today's homeowners.
* The substantial decline in market prices will increase defaults and pose serious financial problems for FHA, Fannie Mae, Freddie Mac, and the private mortgage insurers. Research shows that defaults increase when homeowners have less equity in their homes. A decline in market prices would increase defaults by all types of homeowners. Government-sponsored and private mortgage insurers would also experience sharply higher default losses.
* A flat tax would make it difficult for homeowners to refinance. If current homeowners could not refinance because the value of their homes declined under a flat tax, they would not be able to take advantage of the lower interest rates that might prevail after the institution of a flat tax.
"Homeownership yields enormous social and economic benefits for this country," Mr. Retsinas said. "Homeownership is also the dream and the goal of millions of American families. But with a flat tax, fewer people will be able to invest in homes."