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The Mortgage Interest Deduction and its Impact on Homeownership Decisions

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  • Christian A. L. Hilber
  • Tracy M. Turner

Abstract

This paper examines the impact of the combined U.S. state and federal mortgage interest deduction (MID) on homeownership attainment, using data from 1984 to 2007 and exploiting variation in the subsidy across states, over time and due to inter-state moves. We test whether capitalization of the MID into house prices offsets the positive effect on homeownership. We find that the MID only boosts homeownership attainment of higher income households in less tightly regulated housing markets. In more restrictive places - typically larger coastal cities - an adverse effect exists. The MID is an ineffective policy to promote homeownership and improve social welfare.

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Bibliographic Info

Paper provided by Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0055.

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Date of creation: Sep 2010
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Handle: RePEc:cep:sercdp:0055

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Web page: http://www.spatialeconomics.ac.uk/SERC/publications/default.asp

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Keywords: Homeownership; mortgage interest deduction; tax subsidies; land use regulation;

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References

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. How not to encourage home ownership
    by Economic Logician in Economic Logic on 2010-12-28 17:05:00
  2. How to cut the charitable deduction without hurting charities
    by Dylan Matthews in Ezra Klein's Wonkblog on 2012-11-15 16:50:46
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Cited by:
  1. Cole, Adam J. & Gee, Geoffrey & Turner, Nicholas, 2011. "The Distributional And Revenue Consequences Of Reforming The Mortgage Interest Deduction," National Tax Journal, National Tax Association, vol. 64(4), pages 977-1000, December.
  2. Philippe Bracke & Christian Hilber & Olmo Silva, 2012. "Homeownerhip and Entrepreneurship," SERC Discussion Papers, Spatial Economics Research Centre, LSE 0103, Spatial Economics Research Centre, LSE.

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