This column is Part 1 of a two-part series about the Mortgage Interest Tax Deduction and its politics.
The Mortgage Interest Tax Deduction is demonstrably exacerbating the housing affordability crisis while transferring wealth from poorer households of color to richer white households. Yet Congresswoman Nancy Pelosi, a Democrat in the state with the country’s worst affordable housing crisis, refuses to support reform. “Why is Pelosi against a bill aimed at reducing homelessness?” Gillian Rose Brassil recently asked in these pages. “Unclear.”
I would argue that it’s actually clear as day why Nancy Pelosi won’t do right by California’s needy families. It’s as clear as her millions of dollars in real estate and her millions of dollars in campaign contributions from real estate, mortgage lender, and mortgage insurance industry lobbying groups.
What the MID costs
More than 7 million American extremely low income families spend more than half their income on housing, and on any given night half a million Americans sleep on the street, in shelters, or in their cars. America’s needy families spend years on waiting lists for housing assistance, with 75% never getting help.
This is despite Congress spending $200 billion per year on housing assistance. Homeowner subsidies including real estate tax deductions, capital gains exclusions and other expenditures take up $134 billion yearly. That’s more than the budgets for the Departments of Education, Justice and Energy combined.
And 75% of it goes to our country’s richest families.
The MID alone costs the federal government more than all rental subsidies combined, $70 billion a year, nearly equal the food stamp program. By 2019, experts expect it to exceed $96 billion.
The MID was supposed to encourage homeownership. But it’s done the opposite. The MID encourages people who were already going to buy homes to spend more. The bigger the mortgage, the bigger the benefit. “By inflating home values, the MID benefits Americans who already own homes — and makes joining their ranks harder,” writes Matthew Desmond in the New York Times. Jacking up the price of housing “is a particularly poor instrument for encouraging homeownership,” according to economist Edward Glaeser.
Every year we spend $11 billion subsidizing the 1%’s houses. We offer more housing assistance to families earning more than $200,000 annually than those earning less than $50,000.
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Households with six-figure and higher incomes receive more than four-fifths of the total value of mortgage interest and property-tax deductions. The MID “May very well be the most regressive piece of social policy in America,” writes Matthew Desmond.
Racist in effect, if not intention
Homeownership tax benefits are part of what Chris Ladd calls “socialism for white people.”
Between 1934 to 1968, it was the official policy of the Federal Housing Administration to refuse to insure home mortgages in black neighborhoods. What redlining could not prevent, white homeowners handled with burning crosses. “The consequences proved profound,” wrote Historian Ira Katznelson. By 1984, the median net worth for white households was $39,135. For black households, $3,397. “Most of this difference was accounted for by the absence of homeownership.” In 2011, the median white household had a net worth of $111,146. The median household net worth for black and Latino households were $7,113 and $8,348, respectively.
The homeownership gap is the prime driver of the nation’s racial wealth gap. While the majority of white families own a home, most black and Latino families don’t. If black and Hispanic families owned homes at rates similar to whites, the racial wealth gap would be reduced by almost a third.
Thus the MID is a transfer of wealth from poorer black and Latino households to richer white households.
Repealing the Mortgage Interest Tax Deduction would end a regressive wealth transfer that is empirically shown to worsen the housing affordability crisis while disproportionately harming black and Latino families. Reform would free up millions of dollars for desperately needed housing assistance.
Next week I’ll go into why California families especially need Pelosi to support abolishing or reforming the MID and why she might be loathe to do so.
Cathy Reisenwitz writes about software for a living, sex on the side, and policy for fun. Her column “Unintended Consequences” appears regularly in the Bay City Beacon. She’s pro-sex, pro-feminism, and pro-market. Sign up for her newsletter and follow her on Twitter.
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