Real estate tax deductions

I happened upon an interesting statistic at work that reminded me of a post by another Ho Co blogger. This is an important topic, so I don’t feel bad about shamelessly stealing some of the other blogger’s material.

There is a common belief that real estate related tax deductions (mortgage interest, property taxes, etc.) serve to encourage home ownership. If this were the case, one would expect that the value of real estate related tax deductions would be spread evenly among folks of all income levels or possibly even weighted toward those at the bottom of the economic ladder. However, according to the National Low Income Housing Coalition, the sad truth is that the richest 20% of the population (average income over $150K) gets $60 Billion in tax deductions while the poorest 20% of the population (income under $10K) gets less than $2 Billion in tax deductions. This means that real estate related tax deductions are not encouraging home ownership to the folks who need it. Instead, these deductions help subsidize the housing of the wealthiest segments of the population who need the least incentive to own their own home. This is an example of the government trying to something noble, but it just turns out having the opposite effect.

The sad part is that the government could really do something to boost the supply of housing by transferring these tax incentives from the wealthiest individuals to private developers who agree to include affordable housing in their multifamily development projects. Doing so, of course, would be political suicide. It’s funny how the wealthiest few wield the most political power, even in a democracy.