The Mortgage Interest Deduction: An Example of an Upside Down Federal Government Housing Subsidy

Federal housing subsidies overwhelmingly benefit homeowners over renters and wealthier Americans over poorer Americans through the US tax code. A better balance in both areas is needed to encourage equitable economic growth. The mortgage interest deduction is the primary driver of this imbalance and is by far the federal government’s largest investment in housing. Further, no evidence exists that the mortgage interest deduction encourages renters to become owners. Rather, its documented effect has been to encourage those who would purchase homes to buy bigger homes. Modest reforms to the mortgage interest deduction are necessary because of its size and inequitable nature. Any and all savings achieved through reforms must be used to balance housing subsidies by providing more resources for low- and moderate-income renters and owners.