Lessons from Across the Pond
The Anatomy of a Homeownership Crisis

Proponents of repealing the home mortgage interest deduction often cite the United Kingdom as precedent. But the UK doesn’t have a happy story to tell.

Published on: November 14, 2017
John C. Weicher is Director of Hudson Institute's Center for Housing and Financial Markets. From 2001 to 2005 he served as Assistant Secretary for Housing and Federal Housing Commissioner at HUD.
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  • Unelected Leader

    Should get rid of it for no other reason than to force people to buy a home that they can securely afford. Not barely afford on the edge of a cliff. Not something insane with payments 50%+ of their take home. Buy a house you can afford and pay it off asap!

    • SeaAyeA

      Not to mention the vast majority of those making $50,000 or less don’t even get to take advantage of it. It has to be itemized. A filer has to be on the hook for more than the “standard deduction.” Well, the GOP tax plan increases the number for individuals to $12,000 and to $24,000 for couples! So if you’re married you need to be paying more than $24,000 anyway just to possibly qualify. Sheesh.

      • Unelected Leader

        That is true, and a great point. But even before the proposed change raising the individual amount, for example, from whatever it was, like $6200, it was still a problem for so many, and it does favor higher income earners and those living in high priced areas. You don’t want to loan the government any money anyway, and that’s what a tax refund is. Except without interest.

        For example, if you have a modest $100,000 mortgage and a 3% interest rate, even if you’re doing principaled payments, obviously you divide 3 by 12 and get 0.25% for your monthly rate. That means you’re paying $250 that first month just on interest, and maybe your payment is $450 or $500, etc. let’s just say you had a nice lower payment of $450. Now you calculate your interest on $99,800. Which means you’re gonna pay a whopping 50cents less second month in interest. The best thing to do is to buy something you can afford and throw all the money you can get your hands on at it and pay it off. Of course that becomes difficult if you have lots of other debt.

        Raising the standard deduction just makes it all the harder for low income people, and it perversely incentivizes people to do things like claim fewer dependents, etc, so that they have to use the IRS’s horrible tax tables and pay a few thousand extra taxes every year and wait for a refund. Santa Claus does not live in Washington DC or Ottawa or London, just in case anyone forgot what a refund is.

    • QET

      This phenomenon is, I think, less an effect of the deduction than it is of the elimination of the 20% downpayment and the advent of the adjustable-rate mortgage.

      • Unelected Leader

        Yeah should be on a 15/fixed anyway.

        • QET

          I disagree with that as a categorical requirement. There are people who can use ARMs to their advantage and not get into trouble. The downpayment component is probably the one with the greatest effect. Relaxing that is what enabled so many people to get into trouble with ARMs. Most of those buyers were never really “homeowners” at all; they were just renters from the mortgage holder. Of course all of us are that, technically, while we are paying off a mortgage, but when you sink 5 or 6 figures of your own money into a house, you are at least a part owner, whereas those who had to put up almost nothing or in some cases exactly nothing were no different from apartment renters. Except that they had been convinced by others that they were “homeowners” and so the loss of the home was felt as a greater affront than merely being evicted from an apartment for non-payment.

          As for the term of the mortgage, I think that the 30-year term has contributed greatly to the appreciation in price that is, for most owners, the real and only “wealth” that they have. This wealth effect is also urged as a reason for policy that encourages homeownership. You will probably remember that after the mortgage crisis of 2008, the usual progressive suspects claimed that the collapse in home values was the largest single deprivation of black wealth ever; blaming all of the usual conservative suspects (greedy bankers and GOP officeholders) for a failure of a policy they had years before demanded (I worked briefly for ACORN during the heyday of its CRA-based campaigns against mortgage lenders). As with higher education, activists and Democrats believe that all you have to do is get someone into a college, or into a house, and Presto!, instant Middle Class Status. The fact that this doesn’t happen does not deter them from urging the policies and then blaming others when the predictable results occur.

          • Unelected Leader

            Your best bet is to buy things you can afford and pay for them as quickly as you can. No way around it. Your most powerful wealth building tool is your income. It’s not your debt. That being said, of course I’m with you on the higher down payment and it should be more precisely examined as a proportion of their take-home pay. I knew a guy who lost his very nice home during the housing crisis, but I found out he was paying closer to 55% of his take-home on the payment. Of course he wasn’t debt-free besides a mortgage anyway, with some credit card debt and the note on a car, the typical dumb money management that’s so pervasive.

          • Suzy Dixon

            Not to mention millennials saw people like that losing homes and sometimes everything at a very important age. And then there’s the job market. If you aren’t making a healthy income, have debt, etc., then renting is best. Even though on paper the mortgage payment can be similar, as a renter they don’t drop the $300 to get rid of bugs. They don’t pay several thousand to replace the heating and cooling. Buying a home you can’t afford and/or when you’re already debt laden is just asking to have your life turn into a country song.

          • FriendlyGoat

            The best of the country songs are delightful love stories, not “Goin’ Through the Big D” by Mark Chesnutt. (Look that up on YouTube if you don’t know it—–for the real estate-connected lyrics.)

          • Paul Lies

            Lol

          • AbleArcher

            That would be my brother. He’s a surgeon. Like most other doctors he’s brilliant at his job but they accrue such debt to become a surgeon that it becomes a way of life. He makes like $400k or probably more now but he’s at least 300 in debt. But they go out and by the 500K or more house and super nice car etc. then something happens and that income is gone or worse it’s not enough. It can catch up to them too.

  • Gern Blandersong

    My guess is the UK might have too much housing regulation and other taxes which ends up increasing the prices of homes. I just built a house in Minnesota starting in 2016 and my house was an extra $10,000 because of new regulations passed and going into effect in 2016. Also, my builder had 35 separate permits attached to the building of my home. Not to mention all of the taxes and fees that go with building a home along with city/county taxes and fees. Just a ridiculous amount! Then surprise! Our city has had “task forces” this year on how to get more “affordable” housing for its residents because there is a shortage of houses.

    • QET

      Exactly. This is why we have a housing crisis in certain areas of the country.

  • William

    “People‚Äôs impulse to homeownership is right and natural. People who own homes have a stake in their community.”
    A more succinct public policy goal resulting in the subprime mortgage financial crisis in the USA 2008 – 2009 can not be stated.

  • FriendlyGoat

    The contemplated tax plans we now hear discussed are complete departures from sense about what deductions are supposed to be about. You write off state and local taxes because they represent income you don’t actually have. You write off catastrophic medical expenses because they render people too poor to be expected to pay taxes in certain years. You write off mortgage interest so that individuals have an avenue for expensing the cost of borrowing to acquire a (hopefully appreciating) capital asset—–as most businesses can and do. You get an exemption for each dependent in a family because children ain’t cheap to raise. If we had any sense, we’d keep those and ditch the deduction for voluntary contributions to the religion which is now making the USA go politically nuts.

    • Tom

      So…progressivism?
      I realize that you want to give the government the power to destroy religion that goes against your preferred policy preferences, but that’s a double-edged sword there.

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