Thursday, July 14, 2011

Should the government subsidize home ownership?

Home ownership.  It's certainly an issue in today's economy.  Speculation, 100% financing, and predatory lending practices during the heat of the housing bubble certainly points to the cause of the crisis.  But this post is not about that.  What this is about is home ownership.  Certainly there is an emotional element to this topic.  But I propose that in a time when the government is on the brink of default, the federal debt is growing to unfathomable levels, should they be subsidizing America's financing of home ownership?

Mortgage interest, for the majority of filers, is the largest single deduction itemized each year.  I know it has been for me for the past several years.  I certainly enjoy getting that credit back from Uncle Sam for the money I've been paying into my home each year.  By getting credit for these interest payments, the US Government) are giving a discount on these interest payments, providing an additional incentive for someone to rent vs. own via mortgage financing.

Am I saying I want to give up this deduction, the largest personal deduction for me when filing my income taxes? On a personal level, of course not!  But, when thinking about ways the government can increase revenue to close the budget gap that is a serious mid to long term problem for our government, this "loophole" seems to make sense.  I, personally, would like to see a cap put on this deduction.  I think that's the best solution.  By capping, you are not eliminating the deduction for low and middle income homeowners.  At the very least, capping is a way to phase out this deduction (if that is what is ultimately decided by our legislators).  

I am sure this would have a short term negative affect on the demand for housing.  No doubt, as people rationalize and look at the pros and cons to buying a home, interest deduction is one of the benefits listed.  This would reduce the pool of already small buyers, further shrinking already slow demand for housing.  But the greater problem, in my opinion, is the inflated inventory of foreclosures on the market.

Would love to hear any of your thoughts/comments on this idea.

Currently Reading:  Fast CompanyFirst Time Dad by John Fuller

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