Issue link: https://viewer.e-digitaledition.com/i/717441
Several presidential hopefuls have proposed abolishing or reducing the mortgage interest tax deduction (MID). Builder+Architect asked experts on both sides of the issue — J.P. Delmore, Assistant Vice President of Legislative Affairs at the National Association of Home Builders (NAHB) and Andrew Hanson, PhD, Associate Professor of Economics at Marquette University — to gauge the deduction's worth. D oes the MID facilitate homeownership? DE L MOR E : It 's i mpor t a nt t o remem- ber that the MID isn't available to ever y t a x payer. We've fou nd t h at 70 perc ent of home ow ner s t a ke a d v a nt a ge of t he [mor t ga ge i nt eres t] deduc t ion , a nd t he typical profi le of those who use the MID fi ts a member of t he m idd le cla s s , w it h a n i nc ome b elow $2 0 0,0 0 0, who i s i n t he younger stages of life. T h e N A H B b e l i e v e s t h e d e d u c t i o n facilitates homeownership because it makes homeownership more a£ ordable and allows younger homeowners to enter the market. It facilitates access to a couple's fi rst home or move-up home when they begin having kids. There is a direct correlation between family size and mortgage size, which correlates to home size. For every additional family mem- ber, a mortgage increases proportionally. DR . H A NSON: There is essentially zero cor relat ion bet ween mor t ga ge i nt eres t deductibility and homeownership rates. It's not a£ ecting homeownership rates because it's an itemized deduction, which means you only get the deduction if you're an itemized ta xpayer. The remaining 80 percent take a sta nda rd deduction. If you env isioned redesigning the incentive and making it a credit instead of a deduction, you could look at increasing homeownership. There is substantia l evidence that the M I D enables h ig h-i ncome t a x payers to purchase la rger homes a nd deduct more interest. For example, they may ta ke out a la rger loa n instead of ma k ing a dow n payment, buy a second home or buy a more elaborate home. W hat effects would repea ling the deduc- tion potentia lly have on"ta xpayers a nd those in the building"industr y ? DELMORE: If you eliminate the deduction, it's going to take longer for younger, middle- class taxpayers to enter the housing market, and that has implications for their future wea lth accumulation and ability to retire. It will reduce the number of buyers and, ultimately, lower home prices. DR . H A NSON: There is some mer it to t he b e l ief t h a t home pr ic e s w i l l fa l l i f MID were repea led. But the price decline wouldn't be nearly as large as some people think. If you look at models, at the high end, you could see a home price change of 10 to 12 percent. In areas of the countr y where people do not typically claim the mortgage interest deduction, like most cities in the Southeast and Texas, eliminating it would cause a modest decline in average home prices — on the order of 3 percent. If the current policy were instead transformed i nto a t a x cred it , most cities wou ld see average home prices rise. Builders a nd a rchitects may lose a bit of t hei r busi ness i f t he ma rket were t o cha nge. But from a public policy perspec- tive, you have to consider if those dolla rs a r e n ' t b e t t e r s p e n t o n h e lpi n g p e o p l e who currently rent ow n a home become homeow ners rather tha n enabling exist- ing homeow ners to buy bigger homes. ■ Point/Counterpoint: The Value of the Tax Deduction for Mortgage Interest By Tiffany Parnell BOSTON.BUILDERARCHITECT.COM Builder+Architect Greater Boston |