NCPA - National Center for Policy Analysis


November 21, 2005

The recent proposals by President Bush's panel on tax reform led to a debate on whether the home mortgage interest deduction was unfair, providing a huge subsidy for the rich while doing little for low-income Americans, says the New York Times. The mortgage interest deduction and other subsidies will cost the government roughly $716 billion in lost taxes over the next five years.

Theory suggests there are social benefits to homeownership, but we do no know whether they are large enough to justify the size of the subsidy, says Joseph Gyourko of the University of Pennsylvania.

Arguments for the positive effects from a society of homeowners include:

  • Homeowners have a bigger financial stake in their homes than renters do, motivating them to take better care of their houses and communities.
  • In a 1998 study, researchers analyzed data from the General Social Survey and found that 77 percent of homeowners said they had voted in local elections, compared to 52 percent of renters.
  • In a 1996 study, researchers found that compared to the children of renters, children of homeowners had a better chance of finishing high school, especially among low-income populations; they also found the daughters of homeowners were less likely to become pregnant before turning 18.

Homeownership may also affect society in negative ways. For example, homeownership limits mobility. Stability can be good for a community but can also become a problem in the face of a local economic turndown.

According to Edward Glaeser of Harvard University, homeowners have also spearheaded the movement to limit new housing supply that has artificially inflated housing throughout the United States. This is the downside to having individuals with incentives to keep prices up, he says.

Source: Eduardo Porter, "Buy a Home, and Drag Society Down," New York Times, November 13, 2005.

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