Article: https://www.economist.com/news/finance-and-economics/21731163-about-time-too-americas-republicans-take-aim-mortgage-subsidies
During the 1980's, both Ronald Reagan and Margaret Thatcher made efforts to expand home ownership. In America, Reagan expanded mortgage lending and deregulated financial markets. In Britain, Thatcher oversaw a hot sale of state-owned homes to tenants. Both countries provided mortgage-related tax breaks, so more people could afford homes. However, Britain abolished its mortgage subsidies as their housing boom turned to a bust. America, on the other hand, still subsidizes mortgages at about $64 billion a year, but a recent tax plan wants to limit this.
This is probably because evidence does not support the idea that mortgage-interest deductions (MID) boost home ownership. In fact, empirical evidence suggests it has no effect in rich countries, and it could even hurt economies by inflating housing bubbles. To be fair, however, the reduction of MID alone cannot prevent such a bubble.
With interest rates as low as they are, this could be the best time to end MID in total. If that were to be the case, estimates suggest housing prices could fall by 10-15%. Additionally, prices would stabilize as the building pace for houses would slow. For example. the Netherlands altered their subsidy in 2012 and saw a price decline of 10% for houses. However, their prices are now climbing again at a decent rate.
I would agree that the MID costs American taxpayers billions and the the time to be abolish it would in a low-interst rate environment, similar to the one we have now. The reduction of the MID will definately not prevent any bubbles from occuring but will probably make them smaller and more manageable.
ReplyDeleteSeems like the time for MID is over if we want to move toward the economy's best interest. Stabilizing the housing market would be very beneficial for this economy however, the MID needs more bubble reduction help to insure no inflation can occur. I agree with Greg in that these bubble would remain at least smaller and more manageable than before with MID reduction.
ReplyDeleteI think that MID is pretty close to shutting down. Like, Adam said, it would be more beneficial for our economy in the long-term. Also, it would be beneficial because it would reduce some of the tax dollars.
ReplyDeleteIts interesting to see how volatile the housing market has been over the past 10 years. What was once an extremely stable market has gone through some big problems over the past decade. Housing prices falling after getting rid of the MID's would be a good thing. Investing in property is always a solid route so gobbling cheaper property will pay out in the long run because housing price always rise eventually
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