8 ms·

So this article advocates for the removal of the mortgage interest tax deduction, because subsidizing home ownership leads to a larger economic divide between o

So this article advocates for the removal of the mortgage interest tax deduction, because subsidizing home ownership leads to a larger economic divide between owners and renters. As a renter, I appreciate the intent, and I also appreciate any measure to simplify the tax code. That said, I also see compelling arguments in the deduction's favor. The sad truth is that most Americans are terrible at saving and in very poor shape for retirement[1]. And empirically, a home mortgage is perhaps the most successful mass-market forced-savings program in American society today, with much higher participation than tax-deferred retirement accounts[2]. So I see the advantage of tax policies that encourage people to buy their home. [1] Time to get on my customary soapbox: spend less, save more! You'll be happier today, and much happier in the future. [2] Back on the soapbox: If you're an American making a professional salary, have no debt and are not maxing out your IRA and 401(k) contributions, there will be a moment in your future when you do the retrospective calculation on how much more money you would have if you had done so and be very sad. :) Minimize regret, and save more today!

jayess 9y ago
Renters get absolutely screwed. Not only is there a mortgage interest deduction, I live in an area that has a special tax on rent. So not only do we pay property tax through the landlord (and probably a higher property tax for non-primary residences), we get a sales tax on top of that, being a tax on the tax. Either end the mortgage interest deduction or allow rent to be deducted (at least in part).
- cmurf 9y ago
  If the tax were dropped, the short term effect is people would spend the saved money on something else. And in the long term they'd find rental that ends up in the same ballpark price per month - so they'd end up not saving anything and the various governments wouldn't collect taxes. So the tax would have to come somewhere else.
frgtpsswrdlame 9y ago
But most of the MID goes to benefit those who have plenty to save already. Also, I think looking at mortgages as a savings program is incredibly short-sighted. Mortgages are risky and the MID encourages people to overleverage.
marze 9y ago
The interest deduction benefits higher income people with more expensive houses. Like you say, it has no benefit to those paying -10k in interest.
Declanomous 9y ago
Even if you have debt, you should be taking full advantage of your employer 401k match if one is available to you. In almost every case you will come out ahead even if you withdraw the money early. So many of my coworkers do not contribute to their 401K at all, which is literally just leaving free money on the table.
- colordrops 9y ago
  Are there employers that still match? I'm only half joking.
  - hkmurakami 9y ago
    Yes.
  - AnimalMuppet 9y ago
    Yes. I know it's true of my current employer; IIRC it's true of the last three jobs I've had.
  - mattstreet 9y ago
    Cisco Systems matches to 4.5% of your pay.
martincmartin 9y ago
It used to be forced saving, but now people can get second mortgages, HELOCs, reverse mortgages, etc. Also, we could cap the home mortgage interest deduction, and it would still benefit the poor, but not the rich.
epistasis 9y ago
Your goal appears to be to increase savings among the population that has difficulty doing it. The question is whether this tax deduction actually promotes what you want. I think that the article casts a huge amount of doubt that it would.
accountyaccount 9y ago
It might make more sense to kill the tax break on properties north of $1m and shift that to relief for renters under a certain income threshold. You'd leave in place the break for the majority of middle-income wealth builders, close yet another loophole for the wealthy, and enrich lower income renters. It would never ever happen with our current political climate (money is influence), but I feel like it would make sense. As the article mentions, a complete repeal of MID would be even more difficult.
- blawson 9y ago
  Interest is only deductible on the first $1m of a loan already.
  - accountyaccount 9y ago
    Right, I'm saying if a property requires a loan of $1m+ you'd kill MID entirely — including the first $1m.
    - acchow 9y ago
      These step-wise functions cause all sorts of weird, undesirable distortions.
      - accountyaccount 9y ago
        What we have now are weird undesirable distortions from like, WWII-era politics. The best government seems to be able to do is shift distortions to relevancy.
- mjevans 9y ago
  Shift the relief to renters by doing __everything__ possible to have more rental units on the market. The only way to ensure competition in this space is to have over-supply of potential units so that bad pricing and poor service have the relief valve of moving somewhere else (near by).
- 9y ago
komali2 9y ago
Regarding 2: I cannot wait to pay off my debts (scheduled in September!) and start putting money in IRA and 401(k) :) Every time someone asks me if I'm using the 401k I always feel sheepish answering "no... because I have debts with a higher interest rate than I'd get on the return..." Nobody seems to buy it but I've run the math again and again, it's just true.
- rb808 9y ago
  > "no... because I have debts with a higher interest rate than I'd get on the return..." Sorry to tell you now but this is the wrong way of looking at it. The 401k will save you from paying tax the next 50 years. The first few years you might be a little behind but its worth it because later you'll have your contributions throttled. (assuming you can pay that much in)
  - pc86 9y ago
    This is the financial planning equivalent of optimizing your MVP for 3 million concurrent users.
    - deleted 9y ago
      [deleted]
- tehlike 9y ago
  how much was your loan interest?
- pyoung 9y ago
  Does your company offer a 401k matching program? If so, that is basically an instant 100% return. If they are not matching, then you might be right, but if their is a match on the table, it probably makes sense to max that out.
  - succstressful 9y ago
    This advice is common. It should come with the caveat to investigate the vesting timeline for that 401k match. One of my former employers matched at a great rate, but that contribution did not vest until you had spent 4 years at the company. Given the rate of turnover at lower-seniority positions in the industry (PR agency), it was entirely unrealistic for more than half of the employees there to ever expect to see the benefit of that match.
Retric 9y ago
Savings are only part of the equation. Home ownership lowers income mobility by reducing the competitiveness of the labor market and increasing commuting costs. Worse it promotes moving to areas with the maximum possible jobs which destroys smaller towns and city's while creating even worse congestion.
- kudokatz 9y ago
  > Home ownership lowers income mobility by reducing the competitiveness of the labor market Yep. But I still bought anyways, even though houses are what I consider "bad investments" if looking at them in the abstract: * high transaction costs * illiquid * concentrated * requires maintenance ... But the calculation was that since the local market and job market for me are amazingly hot right now, it'd transfer my variable costs into fixed costs and be a cash transaction. Still worth it in some cases.
  - erroneousfunk 9y ago
    I rented until just recently (mostly 1 year or less, over 10 years -- lots of different places in the greater Boston area), and although I ran the numbers to make sure I wouldn't be doing anything too stupid, in the end it just came down to "I want to own my own home" My spouse and I have done a ton of work on it, don't mind the maintenance issues, and we still get a kick out of just pointing to things and saying "that's ours!" (Okay, well... it's most the bank's. But still.) I think "I'm sick of renting someone else's house" is a very non-negligible factor that's not often brought up in cost/benefit analyses like these.
aswanson 9y ago
It's a massive bet on a local employment market in an increasingly volatile economy. It's not an unalloyed good incentive.
- cubano 9y ago
  What about the inevitable growth in telecommuting? Surely owning a home with plenty of space for a semi-isolated home office would be a good thing?
  - aswanson 9y ago
    Agreed. If anything, tax incentives should be offered to businesses that allow telecommuting. From a resource/green perpspective as well as providing a more efficient employment environment, it's a 'good' thing.
  - kcorbitt 9y ago
    This is an argument for buying a house in a low cost-of-living area with a high quality of life. Easy telecommuting will certainly not be kind to the home prices in concentrated metropolises that can only justify their property prices because of the existence of jobs that you can't find anywhere else. I should know -- the only reason I personally am in the Bay Area is because I couldn't make this much money anywhere else. Given the choice, I'd be working from a modest home on the beach somewhere in Mexico. :D
    - aswanson 9y ago
      Sounds you figured out the formula early. Did you get guidance or just saw it yourself?
- kcorbitt 9y ago
  Totally. All else being equal, socking away your money in broadly-diversified index funds within a tax-advantaged account is a more reliable strategy for wealth building than buying a single house in a random market. But human psychology gets a much bigger kick out of owning your own home than owning very small slices of profitable companies in 191 countries, and when public policy and human psychology collide, human psychology wins. :) It's better to incentivize people to save in the way they're willing to save anyway than have people not save at all.
zaph0d_ 9y ago
The problem with renting is, that it will return to you a temporal value(a space to live in each month, after the month this value is basically gone), whereby buying a house will return a lasting value, which you can even use by selling the house. In order to tackle this, the law should be implementing mechanisms to return value to the renter, like the ability to buy the flat after living in it for a certain number of years(like 15-20 years) for a multipel of the monthly rent. This would encourage people to rent longer and would return a fraction of their paid rent to them. But the details would be very complicated, like how do you prevent the landlords using the contract to kick people out, when they've rented the flat almost long enough to buy it? As rents were cheaper in the previous decades compared to the monthly income, this mechanism would not be necessary. But basically burning half of ones income in order to live somewhere must return some value or around the world not only in the US we will have very poor renters and very rich home owners. This can even lead to even more radical political movements.
- deleted 9y ago
  [deleted]
- rlanday 9y ago
  If you want to live somewhere for 15 to 20 years and guarantee you won't be kicked out, you should buy the place. Not everyone renting wants to live somewhere long-term.
- ltdanimal 9y ago
  This falls apart pretty quickly when you think about the fact that the government would be forcing someone to sell something they own
  - zaph0d_ 9y ago
    Yes this is of course a regulatory burden and just a probably unrealistic solution. But the main problem remains, how can someone who is renting get at least some savings out of it?
    - 9y ago
njarboe 9y ago
I think the ease of getting a home equity loan and the ease of refinancing (see Rocket Mortgage, etc.) has reduced this forced saving dramatically. If you don't have the saving mentality, it is easy to get in the habit running up credit cards, paying high interest, getting a home equity or refi offer in them mail, deciding "save money" by cashing out any home equity built up to pay off the higher interest credit cards, repeat as necessary. This cycle is even more tempting in places where the price of homes have rapidly appreciated and the cost of living is going up much faster than wages or the official inflation rate.
naravara 9y ago
>And empirically, a home mortgage is perhaps the most successful mass-market forced-savings program in American society today, with much higher participation than tax-deferred retirement accounts[2]. You just made an argument for a forced-savings program, not for a home mortgage deduction. Moreover, I think the issue with savings is a service problem, not an impulse control problem. Tax deferred accounts are complicated to figure out for a lot of people and it can be difficult to keep track of for people who don’t do regular, salaried work. I still have 2 or 3 401ks from previous jobs that I haven’t gotten around to rolling over just because coordinating with them and getting the form filled out is a bit of a hassle and it’s an easy thing to procrastinate on. And I have the advantage of actually knowing how this stuff works! If it was as easy as just having a chunk of my salary taken out on a regular basis, and made opt-out rather than opt-in, you'd get a way higher participation rate.
- kcorbitt 9y ago
  Yes, I am also in favor of auto-enrolled savings programs. I would be happy from a public policy perspective if we replaced the MID with some sort of automatic savings program that was difficult and annoying to opt out of (maybe intentionally overtax everybody and then stick the tax refund in an IRA by default, and require annoying paperwork to actually get your money back in cash?).
  - twoodfin 9y ago
    Unfortunately, that scheme would probably create an industry of folks who would do the annoying paperwork to get your money back at a fee. Not unlike today's "consumer" tax prep firms.
logfromblammo 9y ago
I would actually argue for an opposing viewpoint. Rather than eliminate the mortgage interest tax deduction, allow the interest on all debts, and rents, to be deductible. If you really need to tax that money twice, raise the tax rate on incomes earned from interest and rent. The problem, as I see it, is FNMA and FDMC. Those entities, whose purpose was to ensure that a market for residential mortgages would exist, is now actually just engines for inflating housing prices and commoditizing low-risk real estate investment. They are the means by which an investor may become an absentee landlord without assuming any of the normal responsibilities of property management. Ordinary people volunteer to maintain and improve the investment properties, because they are offered the illusion of ownership. A wise and shrewd financial plan can certainly make the mortgage system work in one's favor, to produce genuine ownership, but for the most part, it has done little more than create another class of resident somewhere between owner and renter: the mortgage-payer. Having been both renter and mortgage-payer, and having seen some of the ugly hidden details of the US housing market, I do not recommend that anyone in the US software industry actually choose live in a mortgaged home except in the following places: New York City, Chicago, Washington DC, Austin, Seattle, Boston, Portland, Phoenix, Denver. (California properties near LA and SF are simply too overvalued, in my opinion.) Nowhere else has a sufficiently dense industry to ensure that one can work an entire career in the same place without sacrificing higher regular pay as an alternative to moving. I would still like to actually own my own home one day, but as parent poster mentioned, I have done the math, and determined that I would be better off renting and saving, rather than borrowing and paying. And one of the major reasons why is that I have little sense of certainty with respect to where I will be living in five years, and that is roughly the absolute minimum timespan required before taking a mortgage can become less expensive for me than renting. Another is that any event likely to force me to move to find work is also likely to depress local property values. I would prefer to park my net worth in an asset that rises in value when people like me lose their jobs, and in assets that I am not forced to sell when I move, lest they become a financial burden. The money I save can be used to buy a retirement home, after I am done worrying about the consequences of place involved in moving around or staying put. The problem with that mass-market forced-savings program is that dumping all your retirement funds into just one depreciating asset is just a horrible way to retain value. The only reason it works at all is because it forces people to literally sit on their nest egg. They must be aware and cognizant of everything happening to it, and actively defend against any threats to it. It forces people to be active investors in a market they are familiar with, because they live in their own neighborhoods.
Steuard 9y ago
The desire to encourage home ownership to encourage savings was addressed in the article, I think. They pointed out that lower income people usually rent (because they can't afford to own, maybe particularly the down payment) and middle income people who own their homes are often still better off taking the standard deduction (rather than itemizing to include the mortgage interest deduction at all), so the overwhelming majority of the mortgage interest deduction's benefit goes to people who are wealthy enough that they would almost certainly own their own homes regardless. I'd be interested in seeing a careful study of the degree to which the mortgage interest deduction actually plays a significant role in home ownership rates. But at least based on this article, it sounds like it's noticeably less significant than I'd thought.
rconti 9y ago
But it only drives housing prices up so it's not really an incentive.
scarface74 9y ago
The mortgage interest deduction doesn't help the middle class that much with today's low interest rate. If you're married filing jointly, your standard deduction is already $12000 -- which is more than you would pay in interest the first year on a $300,000 mortgage at 4% interest. The median price of a home is $188,00 (http://m.huffpost.com/us/entry/4957604 http://m.huffpost.com/us/entry/4957604).

jayess 9y ago

Renters get absolutely screwed. Not only is there a mortgage interest deduction, I live in an area that has a special tax on rent. So not only do we pay property tax through the landlord (and probably a higher property tax for non-primary residences), we get a sales tax on top of that, being a tax on the tax. Either end the mortgage interest deduction or allow rent to be deducted (at least in part).

cmurf 9y ago
If the tax were dropped, the short term effect is people would spend the saved money on something else. And in the long term they'd find rental that ends up in the same ballpark price per month - so they'd end up not saving anything and the various governments wouldn't collect taxes. So the tax would have to come somewhere else.

frgtpsswrdlame 9y ago

But most of the MID goes to benefit those who have plenty to save already. Also, I think looking at mortgages as a savings program is incredibly short-sighted. Mortgages are risky and the MID encourages people to overleverage.

marze 9y ago

The interest deduction benefits higher income people with more expensive houses. Like you say, it has no benefit to those paying -10k in interest.

Declanomous 9y ago

Even if you have debt, you should be taking full advantage of your employer 401k match if one is available to you. In almost every case you will come out ahead even if you withdraw the money early. So many of my coworkers do not contribute to their 401K at all, which is literally just leaving free money on the table.

colordrops 9y ago
Are there employers that still match? I'm only half joking.
- hkmurakami 9y ago
  Yes.
- AnimalMuppet 9y ago
  Yes. I know it's true of my current employer; IIRC it's true of the last three jobs I've had.
- mattstreet 9y ago
  Cisco Systems matches to 4.5% of your pay.

martincmartin 9y ago

It used to be forced saving, but now people can get second mortgages, HELOCs, reverse mortgages, etc. Also, we could cap the home mortgage interest deduction, and it would still benefit the poor, but not the rich.

epistasis 9y ago

Your goal appears to be to increase savings among the population that has difficulty doing it. The question is whether this tax deduction actually promotes what you want. I think that the article casts a huge amount of doubt that it would.

accountyaccount 9y ago

It might make more sense to kill the tax break on properties north of $1m and shift that to relief for renters under a certain income threshold. You'd leave in place the break for the majority of middle-income wealth builders, close yet another loophole for the wealthy, and enrich lower income renters. It would never ever happen with our current political climate (money is influence), but I feel like it would make sense. As the article mentions, a complete repeal of MID would be even more difficult.

blawson 9y ago
Interest is only deductible on the first $1m of a loan already.
- accountyaccount 9y ago
  Right, I'm saying if a property requires a loan of $1m+ you'd kill MID entirely — including the first $1m.
  - acchow 9y ago
    These step-wise functions cause all sorts of weird, undesirable distortions.
    - accountyaccount 9y ago
      What we have now are weird undesirable distortions from like, WWII-era politics. The best government seems to be able to do is shift distortions to relevancy.
mjevans 9y ago
Shift the relief to renters by doing __everything__ possible to have more rental units on the market. The only way to ensure competition in this space is to have over-supply of potential units so that bad pricing and poor service have the relief valve of moving somewhere else (near by).
9y ago

komali2 9y ago

Regarding 2: I cannot wait to pay off my debts (scheduled in September!) and start putting money in IRA and 401(k) :) Every time someone asks me if I'm using the 401k I always feel sheepish answering "no... because I have debts with a higher interest rate than I'd get on the return..." Nobody seems to buy it but I've run the math again and again, it's just true.

rb808 9y ago
> "no... because I have debts with a higher interest rate than I'd get on the return..." Sorry to tell you now but this is the wrong way of looking at it. The 401k will save you from paying tax the next 50 years. The first few years you might be a little behind but its worth it because later you'll have your contributions throttled. (assuming you can pay that much in)
- pc86 9y ago
  This is the financial planning equivalent of optimizing your MVP for 3 million concurrent users.
  - deleted 9y ago
    [deleted]
tehlike 9y ago
how much was your loan interest?
pyoung 9y ago
Does your company offer a 401k matching program? If so, that is basically an instant 100% return. If they are not matching, then you might be right, but if their is a match on the table, it probably makes sense to max that out.
- succstressful 9y ago
  This advice is common. It should come with the caveat to investigate the vesting timeline for that 401k match. One of my former employers matched at a great rate, but that contribution did not vest until you had spent 4 years at the company. Given the rate of turnover at lower-seniority positions in the industry (PR agency), it was entirely unrealistic for more than half of the employees there to ever expect to see the benefit of that match.

Retric 9y ago

Savings are only part of the equation. Home ownership lowers income mobility by reducing the competitiveness of the labor market and increasing commuting costs. Worse it promotes moving to areas with the maximum possible jobs which destroys smaller towns and city's while creating even worse congestion.

kudokatz 9y ago
> Home ownership lowers income mobility by reducing the competitiveness of the labor market Yep. But I still bought anyways, even though houses are what I consider "bad investments" if looking at them in the abstract: * high transaction costs * illiquid * concentrated * requires maintenance ... But the calculation was that since the local market and job market for me are amazingly hot right now, it'd transfer my variable costs into fixed costs and be a cash transaction. Still worth it in some cases.
- erroneousfunk 9y ago
  I rented until just recently (mostly 1 year or less, over 10 years -- lots of different places in the greater Boston area), and although I ran the numbers to make sure I wouldn't be doing anything too stupid, in the end it just came down to "I want to own my own home" My spouse and I have done a ton of work on it, don't mind the maintenance issues, and we still get a kick out of just pointing to things and saying "that's ours!" (Okay, well... it's most the bank's. But still.) I think "I'm sick of renting someone else's house" is a very non-negligible factor that's not often brought up in cost/benefit analyses like these.

aswanson 9y ago

It's a massive bet on a local employment market in an increasingly volatile economy. It's not an unalloyed good incentive.

cubano 9y ago
What about the inevitable growth in telecommuting? Surely owning a home with plenty of space for a semi-isolated home office would be a good thing?
- aswanson 9y ago
  Agreed. If anything, tax incentives should be offered to businesses that allow telecommuting. From a resource/green perpspective as well as providing a more efficient employment environment, it's a 'good' thing.
- kcorbitt 9y ago
  This is an argument for buying a house in a low cost-of-living area with a high quality of life. Easy telecommuting will certainly not be kind to the home prices in concentrated metropolises that can only justify their property prices because of the existence of jobs that you can't find anywhere else. I should know -- the only reason I personally am in the Bay Area is because I couldn't make this much money anywhere else. Given the choice, I'd be working from a modest home on the beach somewhere in Mexico. :D
  - aswanson 9y ago
    Sounds you figured out the formula early. Did you get guidance or just saw it yourself?
kcorbitt 9y ago
Totally. All else being equal, socking away your money in broadly-diversified index funds within a tax-advantaged account is a more reliable strategy for wealth building than buying a single house in a random market. But human psychology gets a much bigger kick out of owning your own home than owning very small slices of profitable companies in 191 countries, and when public policy and human psychology collide, human psychology wins. :) It's better to incentivize people to save in the way they're willing to save anyway than have people not save at all.

zaph0d_ 9y ago

The problem with renting is, that it will return to you a temporal value(a space to live in each month, after the month this value is basically gone), whereby buying a house will return a lasting value, which you can even use by selling the house. In order to tackle this, the law should be implementing mechanisms to return value to the renter, like the ability to buy the flat after living in it for a certain number of years(like 15-20 years) for a multipel of the monthly rent. This would encourage people to rent longer and would return a fraction of their paid rent to them. But the details would be very complicated, like how do you prevent the landlords using the contract to kick people out, when they've rented the flat almost long enough to buy it? As rents were cheaper in the previous decades compared to the monthly income, this mechanism would not be necessary. But basically burning half of ones income in order to live somewhere must return some value or around the world not only in the US we will have very poor renters and very rich home owners. This can even lead to even more radical political movements.

deleted 9y ago
[deleted]
rlanday 9y ago
If you want to live somewhere for 15 to 20 years and guarantee you won't be kicked out, you should buy the place. Not everyone renting wants to live somewhere long-term.
ltdanimal 9y ago
This falls apart pretty quickly when you think about the fact that the government would be forcing someone to sell something they own
- zaph0d_ 9y ago
  Yes this is of course a regulatory burden and just a probably unrealistic solution. But the main problem remains, how can someone who is renting get at least some savings out of it?
  - 9y ago

njarboe 9y ago

I think the ease of getting a home equity loan and the ease of refinancing (see Rocket Mortgage, etc.) has reduced this forced saving dramatically. If you don't have the saving mentality, it is easy to get in the habit running up credit cards, paying high interest, getting a home equity or refi offer in them mail, deciding "save money" by cashing out any home equity built up to pay off the higher interest credit cards, repeat as necessary. This cycle is even more tempting in places where the price of homes have rapidly appreciated and the cost of living is going up much faster than wages or the official inflation rate.

naravara 9y ago

>And empirically, a home mortgage is perhaps the most successful mass-market forced-savings program in American society today, with much higher participation than tax-deferred retirement accounts[2]. You just made an argument for a forced-savings program, not for a home mortgage deduction. Moreover, I think the issue with savings is a service problem, not an impulse control problem. Tax deferred accounts are complicated to figure out for a lot of people and it can be difficult to keep track of for people who don’t do regular, salaried work. I still have 2 or 3 401ks from previous jobs that I haven’t gotten around to rolling over just because coordinating with them and getting the form filled out is a bit of a hassle and it’s an easy thing to procrastinate on. And I have the advantage of actually knowing how this stuff works! If it was as easy as just having a chunk of my salary taken out on a regular basis, and made opt-out rather than opt-in, you'd get a way higher participation rate.

kcorbitt 9y ago
Yes, I am also in favor of auto-enrolled savings programs. I would be happy from a public policy perspective if we replaced the MID with some sort of automatic savings program that was difficult and annoying to opt out of (maybe intentionally overtax everybody and then stick the tax refund in an IRA by default, and require annoying paperwork to actually get your money back in cash?).
- twoodfin 9y ago
  Unfortunately, that scheme would probably create an industry of folks who would do the annoying paperwork to get your money back at a fee. Not unlike today's "consumer" tax prep firms.

logfromblammo 9y ago

I would actually argue for an opposing viewpoint. Rather than eliminate the mortgage interest tax deduction, allow the interest on all debts, and rents, to be deductible. If you really need to tax that money twice, raise the tax rate on incomes earned from interest and rent. The problem, as I see it, is FNMA and FDMC. Those entities, whose purpose was to ensure that a market for residential mortgages would exist, is now actually just engines for inflating housing prices and commoditizing low-risk real estate investment. They are the means by which an investor may become an absentee landlord without assuming any of the normal responsibilities of property management. Ordinary people volunteer to maintain and improve the investment properties, because they are offered the illusion of ownership. A wise and shrewd financial plan can certainly make the mortgage system work in one's favor, to produce genuine ownership, but for the most part, it has done little more than create another class of resident somewhere between owner and renter: the mortgage-payer. Having been both renter and mortgage-payer, and having seen some of the ugly hidden details of the US housing market, I do not recommend that anyone in the US software industry actually choose live in a mortgaged home except in the following places: New York City, Chicago, Washington DC, Austin, Seattle, Boston, Portland, Phoenix, Denver. (California properties near LA and SF are simply too overvalued, in my opinion.) Nowhere else has a sufficiently dense industry to ensure that one can work an entire career in the same place without sacrificing higher regular pay as an alternative to moving. I would still like to actually own my own home one day, but as parent poster mentioned, I have done the math, and determined that I would be better off renting and saving, rather than borrowing and paying. And one of the major reasons why is that I have little sense of certainty with respect to where I will be living in five years, and that is roughly the absolute minimum timespan required before taking a mortgage can become less expensive for me than renting. Another is that any event likely to force me to move to find work is also likely to depress local property values. I would prefer to park my net worth in an asset that rises in value when people like me lose their jobs, and in assets that I am not forced to sell when I move, lest they become a financial burden. The money I save can be used to buy a retirement home, after I am done worrying about the consequences of place involved in moving around or staying put. The problem with that mass-market forced-savings program is that dumping all your retirement funds into just one depreciating asset is just a horrible way to retain value. The only reason it works at all is because it forces people to literally sit on their nest egg. They must be aware and cognizant of everything happening to it, and actively defend against any threats to it. It forces people to be active investors in a market they are familiar with, because they live in their own neighborhoods.

Steuard 9y ago

The desire to encourage home ownership to encourage savings was addressed in the article, I think. They pointed out that lower income people usually rent (because they can't afford to own, maybe particularly the down payment) and middle income people who own their homes are often still better off taking the standard deduction (rather than itemizing to include the mortgage interest deduction at all), so the overwhelming majority of the mortgage interest deduction's benefit goes to people who are wealthy enough that they would almost certainly own their own homes regardless. I'd be interested in seeing a careful study of the degree to which the mortgage interest deduction actually plays a significant role in home ownership rates. But at least based on this article, it sounds like it's noticeably less significant than I'd thought.

rconti 9y ago

But it only drives housing prices up so it's not really an incentive.

scarface74 9y ago

The mortgage interest deduction doesn't help the middle class that much with today's low interest rate. If you're married filing jointly, your standard deduction is already $12000 -- which is more than you would pay in interest the first year on a $300,000 mortgage at 4% interest. The median price of a home is $188,00 (http://m.huffpost.com/us/entry/4957604 http://m.huffpost.com/us/entry/4957604).