Why Is Increased Home Ownership a Desirable Policy Goal?
It perplexed me when President Bush II enunciated a goal of increased home ownership in the US. It has always perplexed me that the US has mortgage interest deductibility in its income tax code. I can readily imagine that the vested interest group of current house owners would shriek in pain if the US were to reduce or restrict its policies which tend to increase the demand for housing. Despite myself, I cannot help but agree with Paul Krugman,
[H]ere’s a question rarely asked, at least in Washington: Why should ever-increasing homeownership be a policy goal? How many people should own homes, anyway?...Can you imagine the screams of pain, especially among people who own larger, more expensive homes with large mortgages, if the US were to scrap mortgage-interest deductibility? Can you imagine a politician being elected who promised to inflict such pain on this group? Me neither.
In fact, given the way U.S. policy favors owning over renting, you can make a good case that America already has too many homeowners....
All I’m suggesting is that we drop the obsession with ownership, and try to level the playing field that, at the moment, is hugely tilted against renting.
And while we’re at it, let’s try to open our minds to the possibility that those who choose to rent rather than buy can still share in the American dream — and still have a stake in the nation’s future.
Category: Economics, Economics and Law, Housing Posted on
Monday, June 23, 2008 at 7:26am
<< main
Better to say "borrowing to flip a home is like buying stocks on margin." But that wouldn't exactly buttress Krugman's thesis.
Also:True enough, but which do you think Krugman would prefer: Making both deductible, or neither? (I would guess "both" -- but with caps to make the tax code yet more progressive.)
(FWIW, margin interest is also tax deductible.)
1. Mortgage interest is deductible as a business expense to landlords. The home mortgage interest deduction is only available to homeowners who itemize, which requires giving up the substantial standard deduction. Given those two facts, does the home mortgage interest deduction really substantially increase the demand for owner occupied housing or does it simply partially offset the distortion caused by deductibility for landlords?
2. Bush made the point that increased homeownership was part of a creating an "ownership society." Another part of this was giving people ownership of their properly invested Social Security accounts. Margaret Thatcher's administration made similar efforts in Britain. This grew Britain's middle class and changed the political landscape there permanently. Today's Labour Government in Britain has foreign and financial policies comparable to the Bush administration and the Conservatives look like US Libertarians (fiscally anyway). Encouraging ownership may not be the most economically efficient idea in the short run, but if it creates a political constituency for low tax, free market oriented economic policies it may be worth the price in the longer run.
Put another way, homeowners are much less likely than renters to prefer a capitalist revolution to a socialist one.