You're assuming that the people will live in the homes that they buy. They could just as easily spend $50,000 on a shack in Detroit, let it continue to decay, and just live in an apartment in Palo Alto.
Of course, I guess that loophole could be closed in the legislation, but every patch I can think of for closing it has its own loopholes.
If I were the author of such legislation I would do everything I could to require that the person actually live in the house. Possibly even including (as a condition of the program) unscheduled visits to the house to see if they're really living there. But it could be that the authors' intent is different than mine. I'd like to slow down (or better yet reverse) urban blight, first and foremost.
Given the 500k/250k amount, one might suspect that propping up home prices in the mid to upper part of the market is the intent.
Of course, I guess that loophole could be closed in the legislation, but every patch I can think of for closing it has its own loopholes.