Housing Policy: A Crack in the Foundation
England, Robert Stowe, Mortgage Banking
A national consensus that has shaped the very definition of America has been shattered. The once-common assumption across all segments of society and the political spectrum endorsing the quintessential American dream of owning one's home is under attack. Sure, the American people are as fervent as ever in their devotion to private home-ownership. And. in Congress, somewhere between two-thirds and 80 percent of elected officials consider homeownership one of the most sacred of all legislative sacred cows. But, in the rarifed atmosphere of public-policy debate on housing, the idea is not just increasingly suspect, it is coming under direct assault.
A redistributive tax policy appears to have gained some particularly staunch converts among housing experts in academia, in many affordable housing "research institutes" and among public housing advocates. Increasingly, in these housing policy think tanks the idea is that funding that provides housing for the poor in America should come from cutting back on the lost tax dollars that arise due to the mortgage interest deduction The new dogma gathering momentum among some seeking major new sums to house America's poor and near-poor is that the mortgage interest deduction and other housing-related tax policies valued at $65 billion a year are an unfair subsidy to the middle class and should be capped or eliminated. "At every housing conference I attend," says one of the rare, free-market, housing-policy analysts, Carl Horowitz of the Heritage Foundation, "everyone complains constantly and bitterly about the enormous middle-class subsidy" they say is found in the federal tax code.
Many low-income housing advocates and their allies who have targeted the mortgage interest deduction are waging a battle that replays in microcosm the flawed class-warfare notions of earlier notable periods in the world's political history. But this time the idea is to take housing from the middle class and rich and give it to the poor. The stakes in this ideological battle are high. If the mortgage interest deduction is severely limited or eliminated, "it would convert America from a nation of homeowners to a nation of renters," says Norm Ture, head of the Institute for Research on Economics and Taxation. "It would be tantamount to abandoning the American dream."
Publicly, however, the tendency among many low-income housing advocates is to vent their spleen at the wealthy, not the middle class, because to do otherwise would be political suicide for their agenda. The folks at the National Housing Institute in East Orange, New Jersey, lampoon the mortgage interest deduction as a "mansion subsidy," according to the institute's director Patrick Morrissey, even though mansions typically do not carry large mortgages and thereby play no noteworthy role in the benefits received from the mortgage interest deduction. The deduction, rather, seems confined to the high end to the upwardly mobile segment of the upper middle class--those in society who have earned high incomes largely based on their own entrepreneurial talents and abilities. For those favoring the curtailment of the mortgage interest deduction to generate more funds for low-income housing, there appears to be little concern for the impact that such a cap on the deduction would have on either homeownership rates or on the personal finances of current and future homeowners--an effect that many tax economists calculate as potentially catastrophic.
According to a 1989 study prepared by John Savacool for The WEFA & Group of Bala Cynwyd, Pennsylvania, a loss of the mortgage interest deduction would devastate the private housing sector and weaken the entire American economy. Savacool estimated that if the mortgage interest deduction were eliminated, the real gross domestic product (GDP) would decline by an average of $33 billion per year over what it would otherwise be. Mortgage origination volume would fall by $60 billion per year and the number of first-time buyers would be reduced by between 3 percent and 6 percent, according to the study. …