Canada never offered homeowners a tax deduction on mortgage interest, and they didn’t get a housing bubble of the same magnitude. Conversely, given how much emphasis we’ve put over the years on home ownership (tax deductions, minority lending schemes, the GSEs, promises that home ownership = the American dream) it’d have been a miracle to avoid a major distortion. As it is, our government is still pro-home ownership. Having to go back to being a mere renter is still seen as a fate worse than leprosy.
But once we decide to get serious about the issue, we could start by killing the homeowner mortgage deduction.
Professor Ed Glaeser at Economix offers 5 reasons to kill it.
- Subsidizing interest encourages buyers to borrow as much as possible, making it easy for a modest swing in the home value to wipe out the buyer’s equity.
- In places where supply is constrained, the subsidy pushes prices up, which mitigates any savings for the homebuyers.
- The tax cut is regressive, benefiting families at the upper-echelons of the income scale.
- The deduction rewards large, environmentally unfriendly homes.
- And the obvious one: keeping the deduction continues the distortion of arbitrarily encouraging home ownership over rentership.
So yes, let’s kill it. Please. Now.
And if anything, maybe we should encourage renters. We’ve always loved this line from software and tech pioneer Philip Greenspun in an essay he wrote on early retirement:
If you can rent anything decent, try to avoid buying property. Think about the most interesting people you know. Chances are, most of them are renters. People who rent talk about the books that they’ve read, the trips that they’ve taken, the skills that they are learning, the friends whose company they are enjoying. Property owners complain about the local politicians, the high rate of property tax, the difficulty of finding competent tradespeople, the high value of their own (very likely crummy) house or condo, and what kinds of furniture and kitchen appliances they are contemplating buying. Property owners are boring. The most boring parts of a property owner’s personality are those which relate to his or her ownership of real estate.