Editor: David Reiss
Brooklyn Law School

March 22, 2013

Goldilocks Homeownership

By David Reiss

It has only been since the housing bust have we had a serious conversation about how much homeownership is just the right amount.  Mostly, the federal government (under both Democrats and Republicans) has pushed for more, more, more without regard to whether more was better.  Principled commentators on the Left (Paul Krugman, for instance) and the Right have rightly criticized this unthinking commitment to more, but it is very politically attractive to push policies that appear to benefit homeowners (read, voters).

Morris Davis has recently posted his Cato Institute policy analysis critique of federal homeownership policy to SSRN, Questioning Homeownership as a Public Policy Goal. Like others, he criticizes the extraordinary subsidization of homeownership through the significant tax benefits (such as the deductibility of mortgage interest on a personal residence) and financing subsidizes (through the FHA, Fannie and Freddie).  But he also attempts to quantify the subsidy.  He comes up with an estimate of $2.5 trillion.

While I agree with Davis that we oversubsidize homeownership, I am not sure that I am so convinced by the price tag he puts on it. This is because the class of homeowners overlaps so much with the class of taxpayers.  It would be very interesting if he could refine his analysis more to see if federal homeownership subsidies effect a transfer from one group to another — that refinement could lead to an interesting fight in Congress.

I was also surprised that Davis did not rely at all on the work by Glaeser and Gyourko regarding the inefficiencies of federal housing subsidies given restrictive local land use policies.  This work would support his overall argument — not only do we oversubsidize, but the subsidies don’t even help homeowners as much as we think they do.

Well, let’s see if Congress takes Krugman and Cato’s views under advisement as we chart a new direction for housing policy . . ..

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