Time to Ditch the Mortgage Interest Deduction

| Fri Dec. 3, 2010 12:01 PM EST

Adam Ozimek glosses a recent study on the effects of the mortgage interest deduction in suburban areas (which are lightly regulated) vs. urban areas (heavily regulated):

Using national data from 1984 to 2007 they found that the MID did not increase overall homeownership. In areas with light land use regulation they found that homeownership among higher income families was increased, and in tightly regulated housing markets homeownership was decreased for all income groups except the lowest....We spend around $100 billion a year on this subsidy, and to the extent that its defenders are correct and homeownership does have positive externalities, it is actually making urban areas worse off.

There you go. This shouldn't come as any big surprise, since the mortgage interest deduction was always aimed at spurring new homebuilding in the suburbs. But whether or not you think that's a worthy goal, it apparently comes at the expense of homeownership in cities. It's a policy that passed its sell-by date long ago. Get rid of it.

(But replace it with what? Middle class homeowners will feel hard done by if one of their cherished subsidies goes away while millionaires get huge tax cuts and hedge fund managers continue to benefit from things like the carried interest rule. And rightly so! But surely there's some kind of bennie we could give them that wouldn't be quite so destructive in its overall impact?)