On the subject, I've always wondered why the administration doesn't look at increased stimulus for non-homeowners instead of throwing money to prop up craptastic mortgages that folks who probably should be renting rather than buying houses, anyway:
The disparity between the federal government’s support for homeowners and renters is stark. In fiscal year 2009, according to CBO, Washington spent almost four times as much money ($230 billion) to support homeownership as it did to improve rental affordability ($60 billion).That spending on homeowners included $80 billion for the tax deduction for mortgage interest, $16 billion for the state and local property-tax deduction and $16 billion for the capital-gains exclusion.
But it also included temporary commitments, such as the Obama administration's mortgage modification program ($75 billion) and the first-time home buyer tax credit ($14 billion). And let's not forget the continuing federal outlays to subsidize Fannie Mae and Freddie Mac’s credit activities ($43 billion).
By contrast, Washington devoted just $60 billion to improving rental affordability, mainly through a combination of low-income housing tax credits, Section 8 rental assistance, and public housing.
Now, besides being manifestly unfair to a third of the population that doesn't own property, this kind of government assistance tends to funnel wealth collectively upward:
Most people, I think, will acknowledge a general uneasiness with this disparity. It seems unfair for the government to spend 80 percent of its housing budget on the 67 percent of its households who own property.What's more, these federal subsidies flow disproportionately to the most affluent of those households. Homeowners see no benefit from the mortgage interest, property tax or capital-gains deductions unless they itemize -- which means that many homeowners get little or no actual subsidy. The subsidy rises with the value of the home and the tax bracket of the buyer.
In other words, the federal government handsomely rewards the affluent for buying expensive homes and leaves renters (as well as low-income home owners) relatively worse off in the process.
Now, the side-effects of de-emphasizing the primacy of homeownership in a recession, and instead placing greater budgetary emphasis on renters' tax credits and public housing subsidies rather than mortgage interest deductions for the benefit of millionaire property owners would likely include depressing overall residential property values. Normally, this might be considered a desirable thing, but considering how much low- and -middle income property values have declined already in the past two years, would it really make much difference? The whole idea, after all, is to make housing more affordable to everyone, not simply to people with six-figure salaries who can afford the biggest and most expensive homes. Remember, too, that the percentage of urban dwellers who rent versus those who own their own homes his higher than the percentage of suburbanites and rural dwellers---and considering that states that contain America's cities are suffering the biggest budget shortfalls and he highest unemployment rates, it would only seem to make sense to provide an indirect stimulus to cities in the form of renter tax credits or some other forms of relief.
But continuing to dole out tens of billions of federal dollars on what is the equivalent of a tax subsidy to help underwrite Conspicuous Consumption really should no longer be considered an option. It was a crappy, classist idea to start with, and in the middle of a recession, it strikes me as pretty much indefensible.
---Vitelius
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