The Mortgage Interest Deduction and its Impact on Homeownership Decisions

Hilber, Christian A. L.; Turner, Tracy M.

doi:10.1162/rest_a_00427

Cited by 168 publications

(102 citation statements)

References 35 publications

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“…Recent research (Glaeser and Shapiro, 2003;Frame and White, 2005;Hilber and Turner, 2014) points out that these policies are associated with huge costs and can have perverse effects by only benefiting higher income households, and by raising prices and lowering homeownership rates in metro areas with tight restrictions on housing supply. Do policies that promote homeownership by encouraging increasing financial leverage always depress entrepreneurial activities?…”

Section: Resultsmentioning

confidence: 99%

“…For instance, the UK has recently introduced a 'Help to Buy' policy to promote (leveraged) homeownership. For the US, recent research suggests that the mortgage interest deduction (MID) increases the loan size of individual borrowers substantially (Munroe, 2014), while not notably raising homeownership attainment on aggregate (Hilber and Turner, 2014). Our framework indicates that, by increasing leverage, mortgage subsidies may increase risk aversion and crowd out alternative productive (but risky) investments -such as entrepreneurship.…”

Section: Introductionmentioning

confidence: 84%

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Mortgage Debt and Entrepreneurship

2015

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We study the link between mortgage debt and entrepreneurship using a model of occupational choice and housing tenure in a setting where loans are recourse-like in the UK and several US states. Our model shows that as long as the mortgage interest rate exceeds the risk-free rate:(i) mortgage debt diminishes the likelihood of entrepreneurship by amplifying risk aversion; and (ii) the negative relation between mortgage debt and entrepreneurship increases with income volatility. Our model also shows that the link between housing equity and entrepreneurship is ambiguously signed because of competing portfolio and wealth effects. We use the British Household Panel Survey to test and confirm the model predictions, and deal with unobservable heterogeneity employing three research designs -individual fixed effects, housing-spell fixed effects, and instrumental variables. A one standard deviation increase in leverage reduces the probability of entrepreneurship by 10-20 percent.JEL Classification: L26, D14, G11, R21

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Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 84%

Mortgage Debt and Entrepreneurship

2015

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“…The success of housing-related fiscal policy can depend on the portion of formal housing in the housing stock (Worldbank, 1993). Other studies suggest considering the sensitivity of housing supply when assessing the impact of housing-related fiscal policy on housing market outcomes (e.g., Swank et al, 2002;Hilber & Turner, 2014). Preferential fiscal policy treatment of a specific housing tenure may influence labor market outcomes (e.g., Lundborg & Skedinger, 1999;Haurin & Gill, 2002;Alpanda & Zubairy, 2016).…”

Section: Housing-related Fiscal Policy and Societal Outcomesmentioning

confidence: 99%

“…Keen et al (2010) propose that taxation-induced bias in favor of credit-financed housing investment can put financial stability at risk. Hilber & Turner (2014) emphasize that the tax deductability of mortgage interest payments is capitalized into house prices rather than home ownership attainment, in particular in an environment where housing supply is inflexible. Noord (2003) highlights that the preferential fiscal treatment of housing investment income and capital gains is associated with elevated house price volatility.…”

Section: Housing-related Fiscal Policy and Societal Outcomesmentioning

confidence: 99%

“…The tax deductability of mortgage interest payments and the exclusion from taxable compensation of imputed rent from owner-occupied housing represent benefits to housing owners (Poterba & Sinai, 2008). Hilber & Turner (2014) stress that the tax deductability of mortgage interest payments is a relatively expensive subsidy and ineffective in promoting social inclusion. They also note, as does Hanson (2012), that this tax incentive tends to be unassociated with home ownership attainment in aggregate.…”

Section: Housing-related Fiscal Policy and Societal Outcomesmentioning

confidence: 99%

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Housing, Finance, Policy and the Wider Economy

Winkler¹

2017

JMS

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Building an understanding of the complex dynamics between housing, finance, policy and the wider economy is a critical step towards the development of a strategy that permits policy makers to leverage resources and enable the housing market to function better in the pursuit of economic, financial and social objectives. Powerful real, legislative and financial circuits suggest that an enabling strategy for housing can support societal progress and wellbeing. By summarizing the key findings in the existing theoretical and empirical literature, this study helps to explain the complex interrelations between housing, finance, policy and the wider economy by using a simple model; it also deals with housing-related policies and their effects, examines the rational for housing market regulation, investigates whether housing market corrections threaten financial and macroeconomic stability, and asks whether policies are efficacious at controlling housing market outcomes. The important takeaways from this study are: (i) policy setting should be evidence-based, which necessitates further efforts to address existing data deficiencies; (ii) finance trends are in flux and policy effects can be asymmetric, which necessitates regular and critical housing market reviews to identify misallocation, dislocation and reform needs; (iii) improvement in the functioning of the housing market requires a coordinating authority that takes steps to reconcile the various housing market stakeholders' mutually incompatible interests and arrange for concerted policy and institutional reforms. The study closes with an outlook on future research.

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Tax Expenditure Reporting and Domestic Revenue Mobilization in Africa

Redonda¹,

Haldenwang

Aliu³

2021

United Nations University Series on Regionalism

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The use of tax expenditures (TEs) is an important fiscal practice that is often overlooked in public spending debates. The fiscal cost as well as the lack of effectiveness of TEs can be significant. This chapter describes the state of TE reporting across the world, focusing on Africa. It begins by explaining in detail what TEs are and what their role in government expenditure is. It proceeds by offering examples of the fiscal cost of these provisions, their (in)effectiveness, and the reasons why they are often hard to remove. The main portion of the chapter focuses on the lack and inconsistency of TE reporting. The chapter provides the first results of the “Global Tax Expenditures Database” (GTED), an ongoing project aiming to increase transparency and boost research in the TE field. The GTED reveals that over 64% of African countries do not provide any information on their TEs, while most of the countries that do report on TEs leave out important information such as the policy objectives and beneficiaries of those provisions. Lastly, using the available data, the chapter reports that, on average, TEs in African countries account for 2.8% of GDP and 17.8% of total tax revenue, and being as high as 7.8% (in Senegal) and 58.4% (in Mauritania), respectively.

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The Mortgage Interest Deduction and its Impact on Homeownership Decisions

Cited by 168 publications

References 35 publications

Mortgage Debt and Entrepreneurship

Mortgage Debt and Entrepreneurship

Housing, Finance, Policy and the Wider Economy

Tax Expenditure Reporting and Domestic Revenue Mobilization in Africa

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