If anything I have posted so far hasn’t made me a pariah among my professional peers, this piece may well do that.
A column I read in the New York Times on Saturday got me thinking, again, about the question of U.S. government policy of supporting home ownership (which has fallen a couple of points to around 67 percent since the housing bust) by allow a tax deduction for mortgage interest.
In his provocative article, Joe Nocera quotes several economists and questions the policy. Why does the policy represent a cow so sacred that it cannot be slaughtered, not even touched?
That cow, of course, is that that home ownership fulfills the American dream. To my mind, heretical as it may be for a real estate broker to ask, hasn’t the time come to send that old cow to pasture?
As Nocera points out, one argument goes that Americans who own their own homes essentially are better citizens, concerned as they are about keeping up their neighborhoods and the jurisdictions in which they live.
Maybe so. But at what cost?
And where does it make sense to support ownership of second homes by permitting a tax deduction for mortgage interest on them as well?
Among those cited in the column is John Taylor, head of the National Community Reinvestment Coalition, who declared his belief that owning a home was the “most common” way for working-class people to join the middle class. Of course, it’s common–because of the tax benefits. He contends that a home’s appreciation beats other ways of creating wealth, a position that has long been debatable.
I wonder whether all those folks facing foreclosure would agree with him.
I don’t, and I have a hard time finding a credible argument, especially as the nation needs to pay for its considerable spending these days, in support of the policy. Even if Taylor were correct, any pain in the short term must be tolerated – and shared – to end an insupportable policy that hinders critical long-term gains.
Thus, I agree with Harvard Professor Edward Glaeser, a skeptic who argues that a flat homeowners’ tax credit is preferable to the mortgage deduction if homeownership is to be encouraged at all. All such a deduction accomplishes, he maintains, is bribing consumers to buy bigger houses. Glaeser adds:
The idea that homeownership is always great and renting is un-American is an awful state of affairs.
Just to be clear, that tax deduction has enabled me to save thousands and thousands of dollars over the years. Losing it, perhaps in a graduated way, would hurt – a lot.
Would I have purchased residence over the years without it? Maybe, maybe not. Would I be that much poorer today? Same answer: Maybe, maybe not. Would I have been a lesser citizen if I had rented instead? Certainly not.
So, I say do away with the mortgage-interest deduction. Just don’t stone me if you recognize me in mufti.
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022
You can argue this point on either side. The bigger issue is whether you remove all arbitrary tax deferrals at the same time, or just take away the only tax shelter available to the middle class. I say start at the top and get to mortgage interest at the end of the process. David Wessel had a related article yesterday on whether home ownership continues to make any sense at all. In essence the mortgage interest deduction starts to lose its value when there is no equity in the house and the home owner is struggling to make monthly payments.