
How Homeownership Became the Engine of American Inequality - johnny313
https://www.nytimes.com/2017/05/09/magazine/how-homeownership-became-the-engine-of-american-inequality.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=photo-spot-region&region=top-news&WT.nav=top-news
======
kcorbitt
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!

~~~
komali2
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.

~~~
ianai
I just personally disapprove of 401ks. For one, I remember the Great
Recession. They bailed out the banks and left the little guy/gal to ruin.
Contemporaneously, all those fancy market valuations stink of an economy about
to tank, again. I value investing in stocks/bonds, but in current conditions I
would not trust a 401k investment broker.

~~~
chimeracoder
> For one, I remember the Great Recession. They bailed out the banks and left
> the little guy/gal to ruin.

What do you mean by the "little guy/gal"?

It's true that the 2008 financial crisis only resulted in one banker going to
jail, and he was not an executive. It's also true that the crisis only
resulted in one bank getting indicted for criminal charges, and it was a small
family-run bank in Chinatown with a stellar mortgage default rate (0.5%), and
which reported activity that they discovered themselves, not a (metonymical)
Wall Street conglomerate[0].

But if you're referring to people who own 401(k) accounts or receive pension
funds, that's exactly who _was_ bailed out. "Let the banks fail" is a common
refrain, except what that literally translates to is letting people's
retirement funds get wiped out due to impropriety that they weren't involved
with at all.

[0] They identified an employee who had falsified loan applications, and
reported it to regulators after firing the employee. They were acquired of all
charges brought to trial, and the prosecutors themselves later requested that
the charges be dismissed, because they realized how ridiculous they were.

~~~
tacon
>bailed out the banks

In the 1930s, the bank stockholders were wiped out (equity set to zero), and
they started over. In the 2008 crisis, bank stockholders were "bailed out".
The value of their shares did not go to zero. The people who owned the bank
before still owned it after. That is the difference between 401(k) accounts
taking a 30% haircut and the bank stockholders retaining ownership of
insolvent banks.

When the media talks about "too big to fail", they mean "too big to have
stockholders wiped out and have the government recapitalize them". Supposedly
it sounds too much like socialism. It is really regulatory capture at its
finest.

------
frgtpsswrdlame
Here's the economist perspective:

 _Above all, it is inefficient. By subsidizing bigger, more expensive houses,
the policy misallocates scarce savings away from productive investments that
raise living standards through income- and job-creating innovations. It also
makes our financial system more vulnerable: as we wrote in an earlier post, it
encourages people to take on risks – in the form of large, subsidized
mortgages – that they are not equipped to bear. In the recent crisis, risky
mortgage debt was sufficient to put the entire financial system at risk._

[http://www.moneyandbanking.com/commentary/2015/6/3/why-
the-m...](http://www.moneyandbanking.com/commentary/2015/6/3/why-the-mortgage-
interest-tax-deduction-should-disappear-but-wont)

------
arielweisberg
When I crunched the numbers for the mortgage interest deduction it really
didn't seem that compelling. It replaces the standard deduction so the first
12,500$ in mortgage interest does nothing for you.

After that it's just a minor reduction in taxable income and your tax burden
is only reduced by a fraction of your mortgage interest. Not enough to cover
the costs of maintaining a home and the tendency to consume more housing when
owning vs renting.

At the high end sure we are talking real money. Maybe some day it will all be
high end housing and then it will more substantial.

~~~
pkaye
The MID barely cancels out my property taxes. Imagine if your investment
accounts had to pay 1% tax every year based on its current worth even if you
didn't realize any profits.

~~~
njharman
Imagine other investments supplying roads, police, fire, parks, and education
(or at least a place to store kids during work day) for 12 years.

~~~
dismantlethesun
That argument can be made about the usefulness of taxes on anything.

~~~
njharman
Yes, I know. Taxes and social constructs such as governments ARE useful.

------
spaceflunky
This article is incredibly misguided for several reasons...

1.) If you truly are "rich," then you pay for your home in cash. You do not
take out a mortgage on your house. Look at a distribution of loan amounts, the
vast majority are around $600k. Very few are are >$1M [0]. Home loans are a
product for middle-class Americans.

2.) A lot of rich people don't really pay income taxes like middle class
people do. This is something a lot of people fail to understand. For example,
you can be multi-billionaire and make $0 in given year and still be a multi-
billionaire.

3.) If you're rich, do you really care about the $20k deduction you get every
year? Probably not.

4.) Interest rates are so low that the deduction is becoming less relevant.
For example, if you take out a 3.75% loan on $600k, your deduction really
isn't that much, you get to deduct a whopping ~$20k, which even if the highest
tax bracket, you'll get back ~$10k The deduction argument holds a lot more
weight when interests rates are high.

But glad to see more attacks on the "bourgeoise middle-class" from the trusty
NYTimes.

[0] [http://lenkiefer.com/2016/10/11/hmda-
viz1](http://lenkiefer.com/2016/10/11/hmda-viz1)

~~~
microdrum
This, 1,000x.

There are a lot of families making $1 million gross ($500K net) in income.
They live in SF and NY. Both parents work 10 hour days. They live in an
uncomfortably small house and have a $1 million mortgage. They can barely save
for college after paying for childcare costs and the mortgage. But they're
"rich." Yeah, right.

~~~
chadgeidel
Not sure about your numbers here. A million dollar mortage today represents
just under $5k per month or $60k per year. that's well under the recommended
30% for a $500k income. I have a hard time believing "They can barely save for
college after paying for childcare costs and the mortgage" \- I have no idea
what childcare costs are, but I would be shocked if they were in excess of
$300K-$400k per year.

------
gumby
The mathematics of the MID are dumb; the optics are what sell it. If it lets
someone making, say, $100K a year able to spend 30% more on a house payment,
it also enables everyone else making 100K/year to pay that much more. So the
same people compete for the same houses. Its main effect is to push up the
commissions the agents pay and increase the amount of interest banks earn. It
doesn't actually help the person buying the house.

Except that if you're in an increasing market it can push the sale price up.

A fetish for home ownership also screws up labor force mobility and reduces
the granularity of variations in cost of living (some of which is discussed
here). We'd be better off if large, publicly traded corporations owned most of
the housing stock and provided it on long term lease (which is almost the
situation today, but in the most complicated fashion possible). Then nobody
would be "tied to the land".

~~~
gumby
A reply to my comment is marked dead and I can't revive it, but I can still
reply to it:

> So, in effect, large, publicly traded corporations would then own the land,
> as you describe it? You think that's a good idea?

I don't mean it "in effect" I mean it explicitly. The advantages are large and
the risks addressable:

\- It spreads ownership around: the shareholders all own the housing stock the
corporation owns. Thus they are buffered from the risks of a local market
downturn.

\- It makes moving easier (if you live in a place that suffers, say, a huge
factory closure, you can't sell your house since everybody else wants to do so
as well).

\- It encourages a variety of housing types (single family to semi detached to
large apartment blocks) and again buffers against, let's call it, "style
risk").

And frankly when you have a large corp you can regulate some of the most
egregious problems like fair housing rules, environmental and code issues,
etc. Such companies are likely to be stable equities good for retirement funds
etc similar to publicly traded utilities and less like airlines much less high
tech businesses.

~~~
gumby
Wow, so this got down voted too. It's not inflammatory or off topic: how about
responding to it instead?

------
acconrad
Can anyone speak to how taxes are appropriated? Because in all of this talk
about MID and perhaps how eliminating it might level the playing field, that
only seems to make sense if that money is then appropriated to lower income
individuals. I mean the government could simply take that surplus of taxes and
shove it into the military for all we know, which in the end doesn't help
anyone given our already exorbitant military spending budget.

I also wonder how much of this is personal accountability, and I say this as
someone who has voted for and willingly pays additional taxes to provide low
income housing opportunities in my community. I mean one of the families that
was highlighted was a family of 6 that lives off of $50k/yr with only one
parent working. Personally I can't imagine raising one child on $50k/yr in the
greater Boston area, let alone 4, and knowingly not trying to have both
parents employed. The wife even mentions that the husband was out of work for
8 months...were you not trying to fill in the gap? Even a minimum wage job
should cover the cost of day care for their youngest child, who is too young
for full-time schooling. I'm really trying to be on the side of some of these
folks, but their stories and situations find it hard for me to empathize.

~~~
xherberta
_> Even a minimum wage job should cover the cost of day care for their
youngest child, who is too young for full-time schooling. _

In many markets, no it won't, if you can even find a daycare with an opening.

Anyway, this plan sounds like a net negative for the family unless the job can
cover daycare PLUS commuting costs, work wardrobe, increased food costs (less
time to cook from scratch), and the hassle involved with finding alternate
care when any of the four kids are sick.

Some people consider the "humanity value" of having a parent at home to care
for children to be worth the financial downside. That's their choice. By the
way, most developed nations agree...

From the New Republic: *Among developed nations, the U.S. is now the only one
that doesn’t guarantee some kind of paid employee leave available for new
parents." [http://bit.ly/2pZ03Ay](http://bit.ly/2pZ03Ay)

------
kemiller
Removing the MID would make middle-to-upper-middle-class people poorer, and so
reduce inequality that way, but would it help poor people at all? The net
monthly cost of housing would stay the same, just shift the proportion of your
payment that goes to the government vs the bank. It's true that it's
regressive, but I'm skeptical that's a huge factor.

I think it would just help landlords, who would retain the ability to deduct
mortgage interest as a business expense, and who would suddenly have both an
influx of people kicked back into the renter pool and cheaper properties.

The real issue is lack of supply due to zoning and planning issues, and
probably the cultural preference for single-family. Also the crazy-low rates.

Edit: To be clear, I'm not saying the MID is a great thing. If it didn't
currently exist, I wouldn't be in favor of introducing it, and it was a huge
windfall to whomever owned property when it was introduced. But what's done is
done, and it would be pretty punitive to impose a negative windfall on every
homeowner in America now. Maybe grant a one-time benefit when you change the
tax code and let things sort themselves out from there?

~~~
accountyaccount
I think adding an upper limit to MID would serve everyone well.

~~~
tanderson92
It is currently in-place at $1m of mortgage debt, and this fact was mentioned
numerous times in TFA. It was mentioned in the article that Rep. Keith Ellison
wants to move that number down to $500k.

~~~
accountyaccount
No, I mean remove it entirely. If you're buying a $1m property you don't
qualify for any MID. From the first $1 on.

~~~
tanderson92
Ah! It's a good thought. I would be concerned that it's regressive in a
different way. As it is you already see people unable to afford certain
cities. This will only compound the effect since regional differences in real
estate markets trump the difference within.

It might work, but that is my reservation.

------
ProfessorLayton
Removing the mortgage interest deduction is the third rail of politics. Until
most people are renters, I realistically don't see it ever going away, and is
one of the few major benefits widely available [1] to the middle class.

The US is still reeling from a strong racial divide, particularly in regards
to homeownership. As stated in the article, banks would literally redline
neighborhoods that weren't white enough as late as the 80s [2]. But it was
worse than that, my parent's house (Built in the 40s) in the East Bay came
with old covenant documentation stating that no POC were allowed to live in
the home unless they were servants! Thats how bad it was in some areas as
prosperous as the Bay Area, and we're still feeling its effects.

[1]
[https://www.census.gov/housing/hvs/files/currenthvspress.pdf](https://www.census.gov/housing/hvs/files/currenthvspress.pdf)
[2]
[https://en.wikipedia.org/wiki/Redlining](https://en.wikipedia.org/wiki/Redlining)

~~~
smileysteve
It can however, be implicitly reduced. The rumours of the trump plan include
doubling the standard deduction and removing the state tax deduction. Minus
other major itemized deductions, this will reduce the MID usage.

------
dnautics
"It is difficult to think of another social policy that more successfully
multiplies America’s inequality in such a sweeping fashion."

Tax deduction for employer-insured healthcare?

~~~
rqebmm
Carried-interest loophole?

------
DamnYuppie
I don't know of anyone who bases a home purchase decision on the mortgage
interest deduction. Seriously location, school district, cost of home, time to
commute, yard size, cost of HOA are all more important to everyone I know. In
fact it has never come up in conversations about home purchases with my peer
group.

~~~
refurb
Sure it does. Think of it this way....

Targeting an all in home payment (principle, interest, insurance, taxes) of
1/3 your $100K income, so $30K or $2,500 per month.

In a world with MID, the ~$1500 in interest payment each month can be paid
with pre-tax money. Assume you're in the 30% bracket, that means an extra $450
each month. Now you can afford a mortgage that costs effectively $3000 per
month, which comes out to another $50K to $75K in purchase price (rough
estimate assuming 4% interest rate).

~~~
kudokatz
> Now you can afford a mortgage that costs [more due to market distortions]

sounds like a great way to push up prices!

------
pjmorris
> "It is difficult to think of another social policy that more successfully
> multiplies America’s inequality in such a sweeping fashion."

> "In 2015," "That same year, the federal government dedicated nearly $134
> billion to homeowner subsidies."

The article author isn't thinking of the Fed's various QE programs, which have
subsidized lenders through the purchase of ~1.8 Trillion in mortgage-backed
securities over a five year period after the financial crisis. MID is a drop
in the bucket next to that.

If you treated the 1.8T as a single 30 year mortgage at, say, %3.5 interest,
that's about a 10 Billion/month mortgage payment we're collectively carrying
to bail out whoever sold those MBS to the Fed. That's about the same as the
aggregate homeowner subsidies mentioned in the article.

------
mikekij
It seems many of these articles see tax deductions as the government giving
money to tax payers, instead of the government agreeing to forcibly take less
of a tax payer's income. It's an important distinction I rarely see made by
the NYT.

~~~
callalex
What practical difference does this actually make?

~~~
mikekij
They're conditioning a generation of taxpayers to see tax dollars as the
government's money, rather than the taxpayers' money. This breeds economic
entitlement and class warfare.

------
gricardo99
You can go back further, start around the 1930s, and see housing
policies/practices that didn't just drive inequality, but also segregation[1].
I was shocked (pardon my ignorance).

1 - [https://www.amazon.com/Color-Law-Forgotten-Government-
Segreg...](https://www.amazon.com/Color-Law-Forgotten-Government-
Segregated/dp/1631492853/ref=asap_bc?ie=UTF8)

------
kcorbitt
From the article: "She goes without a savings account and regularly relies on
credit cards to buy toilet paper and soap."

Maintaining a relatively constant credit card debt (which is what it usually
meant by "relying on credit cards" for routine purchases) is often more of a
financial literacy problem than an income problem. It's obviously harder to
get out of this trap on a low income, but if you're servicing your debt -- and
if you're living off of credit cards long-term you have to be -- then your
average income actually matches your average expenditures, including credit
card interest charges. Someone in that situation would be so much better off
if they could just pull together the few $1000's necessary to pay off the
debt, and then start slowly accumulating savings from the money that would
otherwise go towards interest payments. Unfortunately, the people I know who
live on credit card debt seem willing to spend any small windfall that comes
their way immediately, instead of using it to pay down those high-interest
loans and start saving.

I have a brother-in-law who's in this situation. He makes $90k and has no
dependents, but seems to have constant credit card debt that fluctuates
between $10-$20k. That's an extra $1500-$3000 free and clear he could have
every year by just paying off his cards and pocketing those interest payments,
but for whatever reason he sees things differently and is totally content to
carry that balance indefinitely.

~~~
lr4444lr
But then you invite an onslaught accusing you of blaming the poor for their
cyclical poverty, because they never had parents who taught and modeled sound
financial behavior.

------
11thEarlOfMar
It's a very complicated effect to model. Some random thoughts: Increasing home
prices also means increasing property taxes and increasing insurance costs.
Larger homes mean more expense to heat, cool, furnish, maintain, etc. Some of
the tax savings can contribute to a larger mortgage and thereby drive higher
home prices, but there are quite a few offsetting expenses.

Home equity is a contributor to the wealth effect. The wealth effect is a
driver for consumer spending. Consumer spending is one of the more potent
economic forces.

The mortgage deduction makes home ownership more affordable, but does not mean
anyone can buy anywhere. Most people who rent can identify some other location
in the US where they could afford to buy. They'd need a job that produces a
sufficient income, and they'd need a down payment. But they need those with or
without MID.

If we simply eliminated the MID, we'd see a period of volatility in real
estate prices that would eventually settle out into a new equilibrium. But
would that equilibrium be better overall for the economy? Would more people be
able to own?

------
avelis
I think I remember hearing something on Planet Money on if the MID was
reformed or eliminated that house prices would drop basically across the board
as an adjustment to that tax code change.

Certain homeowners with a mortgage could, almost overnight, go underwater with
their home and on the other end homes could become more affordable under a
smaller price point.

~~~
dcdanko
Surely the MID would need to be slowly phased out or just capped?

~~~
rootusrootus
I would think so. Assuming it was politically feasible at all, it seems like
it would need to be phased in. Or at least announced quite publicly that loans
originated after a particular date could not have their interest deducted.
It's not particularly fair to existing homeowners to eliminate the deduction
after they've already purchased a house.

~~~
TheCoelacanth
> Or at least announced quite publicly that loans originated after a
> particular date could not have their interest deducted

That would probably cause a crash in the housing market and leave many
homeowners underwater on their mortgages. Phasing it out gradually seems like
a better approach to me.

------
homeowner55
Just a thought experiment: If home ownership was rare, almost everyone would
be renting. The management company in addition to having to pay the bank loan
would also have to make a profit.

To me that sounds tantamount to another tax on living. Anecdotally, owning in
LA is cheaper than renting a comparably nice place. And that's irrespective of
tax breaks.

~~~
rlanday
The management company can probably manage and maintain a large number of
properties more cheaply per-property than a homeowner can maintain a single
property. So even if the management company is turning a profit, that doesn't
necessarily mean it's a bad deal for the homeowner. Your argument is basically
the same as "no one should ever hire a plumber because the plumber is turning
a profit which makes it a bad deal."

------
jakelarkin
MID is a nice subsidy but one really can't speak to economic inequality in
housing with calling out use of local zoning regulation as cause of
artificially low supply. A lot more people would be able to afford a house or
at least have cheaper rent if it werent for the shenanigans going on with
development/zoning reviews.

------
terminlvelocity
If they wished to show the effects of the MID, I wish they would have started
by comparing a renter vs. a homeowner that were in more similar circumstances.

Of course a family with 2 adults that are 10+ years older and waited a decade
longer to have kids are going to be in a very different financial situation
than a 26 year old single mom that makes 13% of the income of the couple. How
does such an apples-to-oranges comparison remotely demonstrate that the MID is
the "engine of American inequality?"

But perhaps the point is that the renter has no chance of escaping her current
situation? The story of the homeowners proves that it is absolutely possible
to do so. Recall that Asare grew up poor. While we don't know much about his
wife's background, we do know that the two were also renters for years, before
a nonprofit program helped them buy their first house.

------
pc2g4d
I've been wishing for the following: a compelling, interactive visualization
of wealth transfers in the united states. Which states give/get more from the
federal government? Which parts of the income spectrum give/get more in
taxes/benefits? Is there something like that out there?

Yesterday there was the thing about county wealth disparities. Something like
that but more general.

------
1_2__3
I think about how recently and spectacularly housing has gone off the rails
and I get so sad. What a complete disaster this is turning into.

------
macmacaka
Is this the right TL;DR of this article? "Homeownership leads to inequality".
"Inequality is bad". Therefore, "Home ownership is bad". Therefore we should
make home-ownership as hard as possible. So when nobody owns a home, everybody
is equal. Sounds about right.

~~~
wnissen
The subsidy is enormous compared to the cost of other housing programs, and it
almost all goes to well-off or rich people. So, no, your TLDR is not accurate,
as it points to homeownership as an important wealth-building mechasism for
those who can afford it. Furthermore, since the FHA was straight-up refusing
to insure mortgages in black communities until 19-freaking-68, there is a
strong historical effect of perpetuating racial inequalities by making only
whites eligible for housing subsidies. We spend more than four times as much
on mortgage interest than Section 8 housing subsidies.

TL;DR: The mortgage interest deduction is a welfare payment that you have to
be rich (and until 1968, white) to get. Maybe we shouldn't spend $71 billion a
year on it.

------
wmblaettler
Anyone able to find a link to the "widely cited 1996 study estimated that
eliminating the MID and property-tax deductions would result in a 13 to 17
percent reduction in housing prices nationwide"?

------
KboPAacDA3
What's done in Europe?

~~~
bigpeopleareold
In Norway here, many municipalities do not have property tax. Oslo implemented
it recently, but only for property greater than a certain limit (and there is
a push, of course, to remove it.) You can tax write-offs on interest from
mortgages and also writeoffs and hire interest if you save in a BSU account
(Bolig Sparing for Ungdom, or House saving for the young, which only applies
to those 18-34.) Also, I think you can get any rental income written off if
you rent a room or a basement apartment for 7000 NOK or less.

The fact is now, Oslo is experiencing what people are calling a housing
bubble. Prices are also impossible given salaries (given conversion rates,
they do not compare to the prices like in NY, for what it is worth.)

All these things tend to point to two directions: a) there is such a drive to
own your own home here that it has done something to housing prices and b)
they want people be maintain debt. Unlike the US, you can write off credit
card and personal loan debt. It's a nice thing to be able to do but I'd
presume that encourages a credit boom.

------
cmurf
FWIW, business rent is tax deductible, whereas personal rent is not. Another
way to look at it is, personal rent is taxed, so it acts as an indirect
consumption tax.

------
ars
> who generally fail to acknowledge themselves to be beneficiaries of federal
> largess. “Today, as in the past,” ... “most of the recipients of federal aid
> are not the suspect ‘welfare queens’ of the popular imagination but rather
> middle-class homeowners, salaried professionals and retirees.”

This quote is extremely misleading! There are not given aid, they are just not
charged as much tax.

When people think "welfare queens" and "federal aid" they are talking about
people who pay negative tax - they get more aid then their tax.

Simply not taxing people at 100% of their income should not be considered
"aid".

------
SaltySolomon
I really don't get this deduction, it is basically rewarding people to take
risk and makes it better to take a morgage than buy the home outright?

~~~
AnimalMuppet
No. If you pay $X in mortgage interest, you get $X * Y% back, where Y% is your
incremental tax bracket. That is _not_ a net win. It's just less of a loss.

~~~
JustAnotherPat
if you put your money in something like crypto instead, you can come out ahead
easily.

~~~
thescriptkiddie
People are going to downvote you for mentioning cryptocurrencies, but your
point is true even of much more conservative investment strategies. A home is
not an investment, it is a depreciating asset. If you can afford to buy a home
(in cash or on a mortgage), you will almost always come out ahead if you put
the money into mutual funds and rent instead.

~~~
AnimalMuppet
I question your "almost always".

If I buy a home, it's a depreciating asset. That is, I buy a home (via
mortgage) for $300,000, and at the end of the mortgage, it's only worth
$200,000. So I've paid $300K for an asset that's only worth $200K. But if I
rented, at the end of the same time period, I have an asset worth $0, _and
still have to pay to live somewhere_.

But of course it's not that simple. I can often rent for less than I can buy;
I can invest the difference. If I don't live in the same house until I pay off
the mortgage, I don't wind up with a place to live for free. If I downsize, I
can wind up with a place to live for free _and_ a chunk of cash. And so on.

Let's take one specific example. Suppose I have little cash. I could borrow
$300K and buy a house. At the end of 30 years, I have a house. I've paid,
what, $2000/month in payments. At the end of the deal, I have an asset worth
$200K, in which I also can live for free (but I can't do both - I can get the
$200K, _or_ I can live in it for free). If I want the same deal putting the
money into a mutual fund, I probably can't get it, because nobody's going to
lend me $300K to invest in a mutual fund. The deal I can get is to rent for
$1000/month, which gives me $1000/month to invest. At the end of the same
amount of time, I have nothing to show for the $1000/month in rent except
having not been homeless. For the $1000/month I've invested, I have... well,
it's hard to say. What's your best guess about the rate of return of the
mutual fund, and what's your variance around that best guess?

~~~
thescriptkiddie
The number I've always heard is 4% after inflation, but that assumes no
capital gains tax. Here is an article [0] that claims 1.9% per year over 30
years after accounting for taxes and inflation. Plugging $0 starting capital,
$12,000 addition per year, and 1.9% compounded annually into the compound
interest formula yields $480,000 after 30 years. Then keep in mind that owning
a home obligates you to pay for property tax, maintenance, and insurance. Of
course, there are still some cities where buying is a sensible option [1].

[0] [https://www.forbes.com/sites/advisor/2014/04/24/why-the-
aver...](https://www.forbes.com/sites/advisor/2014/04/24/why-the-average-
investors-investment-return-is-so-low/#5741bca9111a)

[1] [https://smartasset.com/mortgage/price-to-rent-ratio-in-us-
ci...](https://smartasset.com/mortgage/price-to-rent-ratio-in-us-cities)

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clavalle
I'd be willing to bet that if we eliminated the home mortgage interest
deduction completely it would barely move the needle of what homes people
choose to buy or the number of renters vs. owners.

I would love to see the numbers, though.

~~~
shados
Its like municipal taxes. People don't get about the cost of the house itself.
They only care about the monthly payment (or well, the total cost of
ownership, since the deduction only directly affect you yearly).

This is kind of like municipal taxes. Take the city of Cambridge in Mass,
which has an absurdly low tax rate. Compare it with some of the cities near by
(eg Somerville). A similar property in a similar location will bring you down
roughly the same amount per month. But in Cambridge, the value of the property
itself is way higher, mainly because less goes to the city and more goes to
the bank (and your equity).

People factor in the deduction when they check what they can afford. If you
save 12k a year in taxes, you can pay 1000 bucks a month more, which
translates in a significantly more expensive property. If the deduction goes
away, property value will adjust accordingly (blips down at first, maybe go up
a little slower for a bit until things even out considering inflation and
stuff).

People who currently have a property and cut it a little close might be in
trouble if they are not grandfathered, and people selling in the short term
might be a little sad.

~~~
rootusrootus
I have no doubt that some folks get out a calculator and plan out their budget
based on the deduction, but I think many do not. Anecdotally, myself and the
people in my group of friends who also own houses, we budgeted for the
mortgage payment irrespective of tax benefits and just smiled on tax day. I
really try to avoid as much as possible relying on outside variables like tax
deductions when planning my budget. I go in conservatively and then appreciate
the benefits while they last.

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anovikov
Why is it somehow bad that people who are investing their money in the place
where they live - thus becoming more responsible citizens than renters who can
just pack up and leave - are getting a small bonus for it?

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arbuge
Please provide proof to back up your claim that this makes them "more
responsible citizens".

~~~
rootusrootus
Although the parent poster was being a little inflammatory with the choice of
words, there _is_ a bit of an interesting point there. Is there a benefit to
society in general from people owning homes instead of renting? High
portability can benefit the renter, but a bigger commitment to the
neighborhood perhaps benefits the rest of us? Maybe enough to incentivize?

~~~
tanderson92
High portability might also benefit society. We hear a lot about families in
the midwest who are locked into their employment markets which are declining.

