Thursday, January 18, 2018
Business

Mortgage interest deduction doesn't aid buying

There is surprisingly little hard evidence that the mortgage interest deduction has encouraged home ownership. Harvard economists Edward L. Glaeser and Jesse M. Shapiro have found that it has only a trivial effect.

A major reason is that the deduction has long been capitalized into the prices of homes. That is, home prices are higher than they would be without the deduction. Thus to the extent that the deduction encourages home ownership, it is exactly offset by the extent to which high prices discourage homeownership.

It is likely that if mortgage interest had never been deductible, the homeownership rate would be similar to what it is today. Indeed, it might even be higher, according to research by the economists Matthew Chambers, Carlos Garriga and Donald E. Schlagenhauf. They contend that without deductibility tax rates could have been lower, which would have raised after-tax incomes, making it easier to afford a home.

There is further evidence from foreign countries. According to a recent paper by the economists Steven C. Bourassa, Donald R. Haurin, Patric H. Henderschott and Martin Hoesli, there is little evidence that mortgage interest deductibility has any impact on homeownership rates one way or another. As the table from their paper shows, many countries without deductibility have higher homeownership rates than we do, and some with deductibility have lower rates.

Reformers have asserted that there are negative social and economic effects to the mortgage interest deduction. For example, it may encourage people to buy pricier homes even if it doesn't affect the rate of ownership. To the extent that the deduction encouraged greater indebtedness, it may have contributed to the recent financial crisis.

As we know, a crucial problem has been that many homeowners found themselves "under water" as the value of their homes fell below the balance of their mortgages. A key contributor to excessive housing debt is the deductibility of home equity loans that can be used for personal consumption.

Economists also assert that mortgage interest deductibility may have encouraged Americans to overinvest in housing at the expense of investments in stocks and bonds that would have led to more investment by businesses in plants, equipment, research and development and so on that would have raised productivity and wages. They also suggest that excessive home ownership has made workers less mobile when the housing market is weak, unable to move to where jobs are more plentiful because they can't sell their house for enough to cover their mortgage.

Other nations have taken steps to limit or end mortgage interest deductibility. Finland adopted a reform in 1993 that limited the rate at which taxpayers could deduct mortgage interest. In Britain, deductibility was eliminated in 2000.

The principal constraint on reform is that the mortgage interest deduction is popular, according to polls. Typical are a CBS News poll in December that found 62 percent of respondents opposed elimination of the mortgage interest deduction and a New York Times/CBS News poll in June 2011, which asked people how important the deduction is. An overwhelming 93 percent of people said it was (63 percent said "very" and 30 percent said "somewhat"). Conversely, an October poll by the Pew Research Center for the People and the Press found that 47 percent of people would support limiting the mortgage interest deduction with 44 percent opposed.

The main argument for reforming the mortgage interest deduction is simple math — it is the second largest tax expenditure, reducing federal revenues by more than $100 billion.

Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul.

Comments
Trump tweets create confusion on GOP plan to avert shutdown; Ryan tries to calm Republicans

Trump tweets create confusion on GOP plan to avert shutdown; Ryan tries to calm Republicans

WASHINGTON — The White House said Thursday that President Donald Trump supports a short-term spending bill to avert a government shutdown, as eroding support for the measure among Senate Democrats and some Republicans increased the prospects of a clo...
Updated: 20 minutes ago

Deal clears way for Oldsmar townhomes

OLDSMAR — The City Council voted 4-1 last month in favor of approving a development agreement for a 50-unit townhome community on a nearly 4-acre parcel on St. Petersburg Drive. According to the terms of the agreement, Oldsmar Towns LLC will build a ...
Updated: 1 hour ago
Tampa Bay doesn’t make cut as Amazon second headquarter finalist

Tampa Bay doesn’t make cut as Amazon second headquarter finalist

Amazon on Thursday released its list of location finalists for its second headquarters — and neither Tampa nor St. Petersburg is on it.Miami, however, made the short list of cities left vying for the new build. Pinellas and Hillsborough counties had ...
Updated: 2 hours ago
Here are Tampa Bay's priciest home sales in 2017

Here are Tampa Bay's priciest home sales in 2017

If there’s one word to describe the buyers of Tampa Bay’s 25 priciest homes in 2017 it’s this: eclectic. As in previous years, the group included doctors, lawyers and professional sports figures — three of the homes were purc...
Updated: 2 hours ago
Ace Hardware in Oldsmar has those hard to find home items

Ace Hardware in Oldsmar has those hard to find home items

When Vision ACE Hardware opened in Oldsmar last November, the very first customer came in looking for a light bulb that he couldn’t find anywhere else."We had that lightbulb," said Stone Ackroyd, marketing manager. "That’s what ACE does. We have thos...
Updated: 4 hours ago
Mellow Mushroom opens third locationin Wesley Chapel

Mellow Mushroom opens third locationin Wesley Chapel

LUTZ — Mellow Mushroom opened the doors to its new location this week in Wesley Chapel.This is the third location for owner Rob Johnson, who opened the Mellow Mushroom in Brandon 12 years ago, and then expanded to Clearwater.Johnson began looking at ...
Updated: 4 hours ago
Sweets, savories and surprises at Jules’ Place in southeast Seminole Heights

Sweets, savories and surprises at Jules’ Place in southeast Seminole Heights

Tampa native Julie Harris worked for the City of Tampa for 22 years, under four mayoral administrations, until retiring as director of communications and neighborhood liaison in 2003.Her familiarity with Southeast Seminole Heights and countless conta...
Updated: 4 hours ago
Popular Spanish cuisine restaurant joins Hyde Park food scene

Popular Spanish cuisine restaurant joins Hyde Park food scene

HYDE PARK—Featuring popular Spanish cuisine, Bulla Gastrobar compliments Soho and Hyde Park’s vibrant restaurant scene offering an authentic Madrid-inspired tapas dining experience to be shared among friends for brunch, lunch and dinner. "Tampa is gr...
Updated: 4 hours ago
Crystal Lagoon planners brace for chilly ribbon cutting today

Crystal Lagoon planners brace for chilly ribbon cutting today

WESLEY CHAPEL — Mother Nature seems to have a way of putting a chill on one of the hottest amenities in residential real estate development.Members of the business community, elected officials and officers with Metro Development Group and Crystal Lag...
Published: 01/18/18
Culver’s Restaurant opening two new Tampa Bay locations this spring

Culver’s Restaurant opening two new Tampa Bay locations this spring

Culver’s restaurant, a Wisconsin-based eatery, is expanding in Florida. The chain, known for its hamburgers and frozen custard, is opening new locations in St. Petersburg and Zephyrhills. A franchise agreement has also been signed for Brooksville. Cu...
Updated: 2 hours ago