Tuesday, August 18, 2009

# Posted 6:07 PM by Ariel David Adesnik  

THREE CHEERS FOR THE MORTGAGE INTEREST DEDUCTION! That may sound hopelessly wonky, but what it means is thousands of dollars off my tax bill, each and every year. I'm not kidding. My wife and I will be saving more than $10,000 a year as a result of buying a home instead of renting.

Why? Because of instead of paying rent to a landlord (which isn't deductible), we'll be making monthly payments to the bank that provided our mortage (which is 100% deductible).

As a first time home buyer, it's hard to believe the kind of incentives the government provides. It's especially hard to believe in the aftermath of a financial crisis driven by reckless lending to home buyers.

Putting this all in perspective is Prof. Thomas Sugrue of the University of Pennsylvania, author of a forthcoming history of real estate in modern America. It turns out that the interest on mortgage loans has been deductible since 1913. But the New Deal is what really started the housing boom:

Easy credit, underwritten by federal housing programs, boosted the rates of home ownership quickly. By 1950, 55% of Americans had a place they could call their own. By 1970, the figure had risen to 63%. It was now cheaper to buy than to rent. Federal intervention also unleashed vast amounts of capital that turned home construction and real estate into critical economic sectors.
So is big government actually responsible for much of the boom we attribute to free markets? Or did this kind of stimulus only work because it was based on incentives, instead of direct government administration of the housing sector? With better planning, could we have avoided the bust that followed decades of boom?

I don't know. I'm just a first-time home buyer.

Cross-posted at Conventional Folly
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