Quote of the Day: Why Homeownership May Be Bad
The mortgage-interest deduction is the backbone of American housing policy. It exits to encourage widespread homeownership. In its favor, it doesn’t actually do that. But it does have consequences: It’s been one of the quieter causes of the housing bubble. The mortgage-interest deduction deserves special recognition for the stupidity with which it subsidizes something that should not be subsidized in the first place. I challenge you to design a subsidy for home ownership that is as wasteful, as unfair, and as harmful to the economy in the long run.
The current deduction costs nearly $80 billion a year in foregone revenues. It is available only to the minority of households – typically affluent – that itemize their taxes. Households at the margin of choosing between renting and owning are not, for the most part, itemizers. The deduction has no effect on their choice, and thus does almost nothing to promote homeownership. What it does promote, studies show, is spending on housing – that is, people who would have been owners anyway pay more for their houses. Prices are higher than they would otherwise have been, and mortgages are bigger. As many owners have learned abruptly, this can worsen economic insecurity.
Conclusion: A tax break (mortgage-interest deduction) that fuels speculation and overborrowing, that widens income inequality, and that fails its own questionable purpose deserves a lingering death.
~From "Housebound: Why Homeownership May Be Bad for America," by Clive Crook in the December issue of "The Atlantic" (subscription required)