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Liberalizing Cities From The Ground Up
Kevin Erdmann argues that mortgage credit standards are too tight. Others say the federal government is subsidizing homeownership. Can they both be right?
Recently I’ve been delaying posting a few things because I wanted to wait till I had more time to cover them, but I’m realizing that I’ll probably have new things to write about on the 15th (which is when regular posting will hopefully resume), so have at it – your first ever premium link list: 1. The Bowles-Simpson Plan is out (but apparently it’s not the final plan that will be presented to Obama), and it looks like a great deal for market urbanism. Their “Zero Plan” is a broad base, low rate approach that eliminates all tax deductions and credits, including not only the mortgage-interest rate deduction that we’ve discussed earlier, but also the tax break that businesses get for providing employees with parking that Shoup criticized a few weeks ago. (By the way, that first linked TPM article is by far the most comprehensive and concise outline of the plan that I’ve seen in the media so far.) 2. Cap’n Transit gives an overview of his local community group’s proposal for eliminating parking minimums in a politically-palatable way. Spoiler: it involves everybody’s favorite transit maps – frequency maps! People involved in DC’s recent moves towards parking reform should especially take note, since the success of their plan depends on the definition of “good transit service.” 3. Reinventing Parking has a post on illegal parking extortion in developing countries. In India and Bangladesh, which Paul Barter discusses, the problem is parking contractors illegally raising prices. In Bucharest, though, where I used to live, the “extortionists” were much less organized, usually gypsy street kids, who didn’t do much to stop you from parking, don’t actually provide protection for the car, and probably aren’t going to do anything to your car but guilt trip you if you don’t pay them. In either […]
1. An bill that would replace New Jersey’s court-mandated patchwork of inclusionary zoning programs with a more uniform 10% affordable housing mandate has left advanced through its Assembly committee after passing the NJ Senate, though Chris Christie promised to veto it. 2. Last month I reported that Obama’s deficit commission may recommend paring back the mortgage-interest tax deduction. Well, the official plan is now out, and – good news! – it looks like completely doing away with the deduction is on the table. 3. The New Yorker reports on a Cooper Union exhibit that models what the area around the proposed Lower Manhattan Expressway connecting the Holland Tunnel to the Williamsburg Bridge would have looked like if Jane Jacobs had lost and Robert Moses had won. 4. Even with $100 million in cash and hundreds of millions in tax-exempt bonds, Bronx Parking, which operates Yankee Stadium’s perennially under-used parking garage, still can’t turn a profit.
Urbanism doesn’t get a lot of breaking news (that is, unless Eric Fidler’s prediction pans out), but this might be an exception: the WSJ is reporting that Obama’s (bipartisan?) deficit commission is considering cutting the mortgage-interest tax deduction. The reports are all very speculative, but it looks like they’re definitely not considering eliminating the tax break entirely. While most libertarians have advocated eliminating the tax break (and in fact all tax breaks) completely and adjusting the general tax rates to make the measure revenue-neutral, it looks like this (along with cuts to the child tax credit, among others) is a cost-saving measure. As I discussed earlier today, the tax credit is just one of many highly regressive government advantageous to wealthy homeowners – the vast majority of Americans don’t even itemize their tax returns, and therefore don’t benefit at all from the tax break. Still, in spite of its regressiveness, it’s enormously popular among voters. Leaving aside considerations of whether the savings should be used to pay down the deficit or to lower marginal rates, any move to limit this deduction would be a good thing for urbanism. While the American ideal of the homeowner involved in a positive way in their community and schools is prevalent, I fear that the greater effect of increasing homeownership above the market equilibrium is to encourage NIMBYism by making people look at their home, rather than their wider community, as their biggest asset. Furthermore, it puts people in the awkward position of desiring a rise in cost for one of life’s most essential needs, which clearly played a large role in the policies that led up to the subprime crash. While this proposed change is certain to encounter fierce resistance from America’s real estate industry and wealthy, entrenched suburban interests, it is only a […]
Paul Krugman asks a question that has been addressed at Market Urbansim: But here’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? Listening to politicians, you’d think that every family should own its home — in fact, that you’re not a real American unless you’re a homeowner. “If you own something,” Mr. Bush once declared, “you have a vital stake in the future of our country.” Presumably, then, citizens who live in rented housing, and therefore lack that “vital stake,” can’t be properly patriotic. Because the I.R.S. lets you deduct mortgage interest from your taxable income but doesn’t let you deduct rent, the federal tax system provides an enormous subsidy to owner-occupied housing. On top of that, government-sponsored enterprises — Fannie Mae, Freddie Mac and the Federal Home Loan Banks — provide cheap financing for home buyers; investors who want to provide rental housing are on their own. (Krugman neglects to mention that landlords also deduct mortgage interest, passing some of the savings to tenants. However, landlords pay taxes on income and gains, which the homeowner usually does not.) Krugman then gives 3 downsides to society of encouraging ownership: First of all, there’s the financial risk. Although it’s rarely put this way, borrowing to buy a home is like buying stocks on margin: if the market value of the house falls, the buyer can easily lose his or her entire stake. I agree, sometimes these risks are better absorbed by the capital markets if the risks cannot be properly diversified through an individual’s portfolio. Owning a home also ties workers down. Even in the best of times, the costs and hassle of selling one home and buying another — one estimate put the average cost […]
In general, I am opposed to just about any tax increase. However, the mortgage interest deduction is one of my least favorite tax breaks. First of all, it’s a regressive tax deduction that transfers wealth from renters and businesses to homeowners. Second, it causes home prices to rise relative to the value of similar rentals, causing conversions of rental properties to condos and other imbalances. Thus, many markets have had a net loss of rental housing stock. As a result of this imbalance of demand related to ownership incentives, developers have less incentive to build for long-term holding since it is more profitable selling condos instead of rentals. Because condo developers will not be responsible for maintenance over the life-cycle of the property, they tend to care less about durability and energy-efficiency than construction cost. In the long run, the homeowner pays the added costs of the higher-maintenance, less-efficient home. Repealing the deduction will be an uphill battle. Homeowners are a reliable voting block, so pandering to them usually pays off for politicians. Repealing the deduction would probably drive home values down further, so it will probably have to be tabled until the credit markets recover. For more in-depth economic insight, read John Tammy’s article: Repeal Housing’s Mortgage-Interest Deduction
