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Research Links Mortgage Interest Deduction with Economic Opportunity

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The research is generally consistent with data and analysis as sembled by NAHB examining the beneficiaries of the MID. Among our findings, we have noted the importance of the housing tax incentives for younger homebuyers, aged 44 and below, who tend to be more credit constrained and are thus paying greater amounts of mortgage interest as a share of adjusted gross income (AGI). By reducing the after-tax cost of buying a home with a mortgage, the MID facilitates homeownership for a broader base of households and reduces the age of a typical first-time homebuyer.

Eliminating the MID would increase the cost of buying a home with a mortgage for most homebuyers, delaying or deferring homeownership for such households. By reducing housing demand, prices would fall, thereby imposing a windfall wealth loss for existing homeowners. Cash buyers would benefit, but because the MID is not entirely capitalized into prices, buyers using a mortgage to finance their purchase are worse off as the after-tax cost of debt increases more than prices fall.

The NAHB research conclusions are reinforced by the academic paper cited above, which provides evidence that communities with taxpayers claiming larger MIDs as a share of AGI produce more economic opportunity by increasing the affordability of homeownership. The MID thus facilitates homeownership and economic mobility.

View this original article on the NAHB blog, Eye on Housing.

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