At a time when middle-income families are increasingly priced out of buying homes, the government should encourage affordable housing availability by providing tax credits to investors in troubled areas, Rep. Ben Cardin, D-Md., said Wednesday.

"Although national homeownership levels have reached historic highs, the dream of homeownership remains out of reach for many families living in economically distressed areas," Cardin said in prepared testimony before a House subcommittee reviewing the bipartisan Renewing the Dream Tax Credit Act.

The homeownership tax credit proposal is patterned after the Low Income Housing Tax Credit program, created in 1986, which gives each state an annual tax credit amount to be allocated to developers of rental housing for low- to middle-income tenants.

The homeownership proposal would be a federal tax credit administered by state housing agencies, said Linda Goold, tax counsel to the National Association of Realtors.

Both lawmakers and housing industry groups hope such a system would provide incentives for housing construction and improvement projects that otherwise would not prove profitable.

"In today's market, there is very little entry-level housing being built new," Goold said. "The nice thing about this legislation is that it encourages more volume and more production of houses. It also carries with it a lot of potential to revitalize communities, like older suburbs, like rural communities where housing tends to be older."

Under the bill, each state would receive a tax credit allotment based on its population -- $1.80 per person -- or about $2 million for states with small populations that don't automatically meet that minimum, Cardin said.

State housing finance agencies would distribute credits to developers who construct or rehabilitate homes in below-median income areas. Homebuyer incomes must also be below the state median.

Investors could receive a tax credit of up to 50 percent of the cost of developing each home.

"What the credit does is fill in the gaps between what the property can sell for and what it costs to develop," Goold said.

A tax credit is considered more valuable than a tax deduction because it is subtracted, dollar-for-dollar, from the total amount of federal income taxes owed. A tax deduction, on the other hand, is subtracted from gross income before federal income taxes are calculated.

The bill would produce 122,000 construction and other related jobs, $4 billion in wages and $2 billion in federal and local tax revenue, according to the National Association of Realtors, which strongly supports the proposal.

It is also expected to generate almost $2 billion in annual private investment and the construction and rehabilitation of 50,000 homes for sale to lower-income families, Cardin said.

President Bush has included a similar homeownership tax credit in his budget request every year since he entered the White House, Goold said.

State housing agencies are the best qualified to administer such a program because they understand the needs of their state and already have a structure in place for oversight of the rental housing program, said John Hughes, senior legislative and policy associate for the National Council of State Housing Agencies.

The biggest criticism plaguing the proposal is its $17 billion price tag over 10 years, Hughes said.

"That's been an obstacle to getting the program passed and implemented," Hughes said. However, he added, "We're optimistic. You never know what to expect."

The homeownership tax credit bill was introduced in April by Cardin and Rep. Thomas Reynolds, R-Texas, and referred to the Committee on Ways and Means, which deals with tax issues. The bill has 184 co-sponsors so far.

A similar proposal in the last session of the House did not make it out of committee despite more than 300 co-sponsors, according to a statement by Rep. David Price, D-N.C., who also co-sponsored the bill.

The Senate is considering a companion bill, introduced by a bipartisan group of senators including Paul Sarbanes, D-Md., Rick Santorum, R-Pa., and John Kerry, D-Mass.

Capital News Service contributed to this report.