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The mortgage interest deduction and its impact on homeownership decisions

Listed author(s):
  • Christian A. L. Hilber
  • Tracy M. Turner

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/
File Function: Open access version.
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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
Handle: RePEc:ehl:lserod:31759
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  36. repec:ntj:journl:v:54:y:2001:i:n._1:p:157-74 is not listed on IDEAS
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