Three professors at NYU's business school look at home-ownership and the problems inherent in bringing (needed) reform to an American institution:
Americans love the idea of a house and a white picket fence. The government encourages ownership through housing subsidies, believing that it stabilizes communities. Owners see their homes as their share of the American dream, and their best way to save money.But according to the Congressional Joint Committee on Taxation, these tax breaks add up to $700 billion in lost government revenue over the five-year period through 2014. As the government struggles to come up with spending cuts and revenue sources, housing subsidies are an obvious place to look....According to data collected by Alex J. Pollock of the American Enterprise Institute, a comparison of homeownership among economically advanced countries shows that the United States is in the middle of the pack, which suggests that subsidizing housing with tax breaks is neither a necessary nor a sufficient condition for a flourishing housing market. Rather, these subsidies enabled people to borrow more than they could afford so they could buy houses bigger than they needed, leading to a house price bubble. The policies encouraged homeowners to make highly leveraged bets on real estate that turned sour and wiped out nearly $8 trillion in household net worth.Moreover, homeownership policies and mortgage subsidies in the United States benefit the rich a lot more than the poor. For example, the economists James Poterba and Todd Sinai recently estimated that the benefits from the mortgage interest deduction for the average homeowning household that earns between $40,000 and $75,000 were about 10 times smaller than the benefits that accrue to the average household earning more than $250,000. These policies increase income inequality instead of reducing it. A better policy would be to gradually wind down Freddie Mac and Fannie Mae and to scale back homeownership subsidies.We favor a long-term focus on rental assistance programs for the poor that are on budget and housed in the Federal Housing Administration, and whose costs are transparent to taxpayers.
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