The Benefits of the Home Mortgage Interest Deduction

Edward L. Glaeser, Jesse M. Shapiro
2003 Tax Policy and the Economy  
The home mortgage interest deduction creates incentives to buy more housing and to become a homeowner, and the case for the deduction rests on social benefits from housing consumption and homeownership. There is little evidence suggesting large externalities from the level of housing consumption, but there appear to be externalities from homeownership. Externalities from living around homeowners are far too small to justify the deduction. Externalities from homeownership are larger, but the
more » ... mortgage interest deduction is a particularly poor instrument for encouraging homeownership since it is targeted at the wealthy, who are almost always homeowners. The irrelevance of the deduction is supported by the time series which shows that the ownership subsidy moves with inflation and has changed significantly between 1960 and today, but the homeownership rate has been essentially constant.
doi:10.1086/tpe.17.20140504 fatcat:aiz5tajctzhb3iwbmnfrpn7cfa