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Subsidies and Taxes Favor Owning Over Renting
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 […]
