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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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File URL: http://eprints.lse.ac.uk/31759/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 31759.

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Length: 32 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:ehl:lserod:31759

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Web page: http://www.lse.ac.uk/
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Related research

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

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References

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  3. Martin Gervais & Manish Pandey, 2005. "Who Cares about Mortgage Interest Deductibility?," University of Western Ontario, Economic Policy Research Institute Working Papers 20059, University of Western Ontario, Economic Policy Research Institute.
  4. Hilber, Christian A. L., 2007. "New Housing Supply and the Dilution of Social Capital," MPRA Paper 11620, University Library of Munich, Germany, revised 14 Nov 2008.
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  8. Tracy M. Turner, 2003. "Does Investment Risk Affect the Housing Decisions of Families?," Economic Inquiry, Western Economic Association International, vol. 41(4), pages 675-691, October.
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Citations

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
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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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. Bracke, Philippe & Hilber, Christian & Silva, Olmo, 2013. "Homeownership and Entrepreneurship: The Role of Commitment and Mortgage Debt," IZA Discussion Papers 7417, Institute for the Study of Labor (IZA).

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  1. Economic Logic blog

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