Like so many other government home ownership policies, despite the best of intentions, it lowers home ownership.
The tax benefits are capitalized/monetized into higher house prices. That is, the tax benefits turn into higher house prices. That’s the way the “free” market works.
- “Research does suggest that the home mortgage interest deduction increases housing costs by increasing demand for housing” Eastman, Tyger, 2019.
- “… estimates show that tax relief on mortgage debt financing cost tends to be capitalised into real house prices” Andrews, 2010.
- “Yet economic studies consistently show that the mortgage interest deduction fails to advance its fundamental purpose. It does not increase the rate of Homeownership” Morrow, 2012.
- “The empirical evidence suggests that, contrary to popular wisdom, the deduction generally does not increase the ownership rate. This result is likely due to the fact that the MID [mortgage interest deduction] is capitalized into house prices” Bourassa, et al., 2015.
- “Eliminating the mortgage interest deduction causes house prices to decline, increases homeownership, decreases mortgage debt, and improves welfare” Sommer, Sullivan, 2018.
- “In fact, it reduced the homeownership rate by about five percentage points. (It raised house prices so much—through the capitalization of tax benefits—that homes became out of reach for some buyers.)” Emmons, 2018.
And most of these studies only looked at the impact of this tax break when applied to live-in home owners, not when it’s applied to landlord-owners. All U.S. landlords qualify for it.
The mortgage interest tax deduction for landlord-owners may have an even bigger impact on lowering the home ownership rate, increasing household debt and decreasing economic growth.
76 Secrets of U.S. Home Ownership – Table of Contents