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Thread: Mortgage tax credits: good or bad?

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    Mortgage tax credits: good or bad?

    The author if this article seems to think so. I'm not so sure I agree, though I see where he is coming from.

    http://americancity.org/columns/entry/2455/

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    Cyburbian ColoGI's avatar
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    Quote Originally posted by mcparks View post
    The author if this article seems to think so. I'm not so sure I agree, though I see where he is coming from.

    http://americancity.org/columns/entry/2455/
    The question is: will society be OK with removing the subsidy for SFD? Will society adapt to a different spectrum of housing choices? If you are OK with the answer then you have your answer. If you are afraid of the demise of the SFD, maybe you have your answer.

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    Cyburbian CJC's avatar
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    Bad. Very, very bad.

    I'm honestly trying to think of one way that they could be considered good, but failing on that. This quote from the article (by way of the GAO and the Tax Foundation) says it all:

    Economists generally agree that the favorable treatment of owner-occupied housing, by lowering [marginal effective tax rates], distorts investment in the economy, resulting in too much investment in housing and too little business investment. The consequence of this is that businesses invest less in productivity-enhancing technology. This in turn results in employees receiving lower wages because increases in employee wages are generally tied to increases in productivity.
    Two wrongs don't necessarily make a right, but three lefts do.

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    Cyburbian stroskey's avatar
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    Our mortgage interest payments don't exceed our standard deduction so I'm kind of mad that because I didn't take a larger loan it's like my mortgage doesn't count.

    It's like they only want to stimulate expensive housing - which is bad. How about NO deductions for anything! I'd go for that.
    I burned down the church to atone for my transgressions.

  5. #5
    Cyburbian WSU MUP Student's avatar
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    I think they are bad mainly for one of the last reasons cited: it provides an artificial incentive to purchase and take out a mortgage and decreases mobility of the population, especially when times get tough like they have been recently. When making decision about whether to sell and for what price, homeowners generally do not think rationally or economically. And when they do start to think that way and behave in their own self-interest and walk away from said mortgage (exercising a right that they likely had in their mortgage and accepting the consequences) they are still punished by society (beyond what the banks and credit reporting agencies do to them).

    Even beyond the issue of mobility is the issue of fairness. Regardless of whether or not homeowners deserve a tax credit, do renters deserve to be penalized for not buying?

    Even worse is the option to receive a mortgage interest deduction on things like an RV or boat as long as it has a bathroom and kitchen (and whatever other criteria) even if you already own another home.

    I don't think that elimination of the credit would lead to the demise of single family housing. Pew did a study a few years back that showed that if the respondent could afford it, SFD was the desired form of housing all around the world - from Bangalore to Buenos Aires to Boston and Beirut and Berlin. It is just more prevalent in the U.S. because we have a lot of land available for private ownership and the resources to actually build those houses.

    All that being said, I will gladly still file for mine for the next few years until we pay off our mortgage!
    "Where free unions and collective bargaining are forbidden, freedom is lost." - 1980 Republican presidential candidate Ronald Reagan

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    Cyburbian CJC's avatar
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    Quote Originally posted by WSU MUP Student View post
    I don't think that elimination of the credit would lead to the demise of single family housing. Pew did a study a few years back that showed that if the respondent could afford it, SFD was the desired form of housing all around the world - from Bangalore to Buenos Aires to Boston and Beirut and Berlin. It is just more prevalent in the U.S. because we have a lot of land available for private ownership and the resources to actually build those houses.
    Oh, definitely agreed. If anything, I think that repeal of the deduction without anything else would likely cause more single family housing to be built (as a percentage of total housing). We'd probably see fewer total units being built, falling prices on existing housing, or a combo of both. Any change in the policy would probably require some stimulus of another type to counteract those deflationary effects.
    Two wrongs don't necessarily make a right, but three lefts do.

  7. #7
    Cyburbian ColoGI's avatar
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    Quote Originally posted by WSU MUP Student View post

    : it provides an artificial incentive to purchase and take out a mortgage and decreases mobility of the population,

    I don't think that elimination of the credit would lead to the demise of single family housing.
    Mobility per se is partly a function of affluence, it is not a given. The issue in our society is that SFD homeownership is a societal value. When I lived in Europe there was still happiness even though SFDs were far less prevalent. And elimination of the credit in our society won't kill SFD, but it will affect markets such that more alternatives will help to be built. Shared walls are more energy-efficient and some will gravitate to that as an economic decision.

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