Economist Ed Glaeser makes a pretty compelling case for phasing out the home interest mortgage deduction. His key points:
- Giving big tax breaks for big mortgages encourages people to leverage themselves to buy more house than they need—which was one of many factors that contributed to the housing bubble.
- The interest deduction actually pushes up the price of housing—especially where housing supplies are constrained by policy or geography.
- It’s incredibly regressive, giving a much bigger housing subsidy to the well-off than to those of modest incomes.
- The mortgage interest deduction encourages people to buy bigger homes on larger lots—which means more resource consumption.
- The policy doesn’t actually do a very good job of encouraging homeownership.
The whole thing is worth a read. And I’ll point out that we’ve recommended the same thing for well over a decade—see, for example, p. 32 of The Car and the City.