For a nation whose citizens pride themselves on self-reliance, the U.S. doles out an awful lot of welfare. Corporations get it. Farmers get it. Even poor people get it. But no other interest group makes out quite the way homeowners do. They — or we, I should say, for I’m a homeowner too — are at the receiving end of a truly staggering array of subsidies and tax breaks. Putting an exact price tag on all of them is impossible, but the value is clearly in the hundreds of billions of dollars a year.
Even with all this aid, though, U.S. homeowners haven’t been doing so well. The value of their real estate holdings has fallen by $4 trillion since 2006, according to the Federal Reserve. Millions of people have been booted from their dwellings over the past couple of years because they couldn’t make their mortgage payments. Millions more foreclosures are on the way. The housing market, despite some hopeful signs over the summer, remains a terrible mess. Washington’s reading seems to be that we’re not subsidizing housing enough. Congress, the Bush and Obama administrations and the Fed have been piling on new aid. For now, they may be correct to do so. With the banking system still shaky, further big declines in house prices could bring disaster. Slowing a price collapse is a reasonable aim of government policy. But as we dig out of this mess, we ought to ask whether the vast infrastructure of government support for homeownership that has been built up since the 1930s is really such a wise policy. How do we subsidize homeownership Let me count the ways. First, more than 80% of the mortgage loans made in the U.S. so far this year have been bought by the government-sponsored entities Fannie Mae, Freddie Mac and Ginnie Mae. That keeps the interest rates on those GSE-backed mortgages substantially lower than on mortgages that can be sold only on private markets, because taxpayers are on the hook for defaults on the former. That risk, long hypothetical, became reality as we got stuck with a $291 billion rescue bill for Fannie and Freddie in the fiscal year that ended in September. Meanwhile, the Federal Reserve is doing its part to artificially lower interest rates by buying $1.25 trillion of Fannie, Freddie and Ginnie mortgage securities this year and next. Then come the tax breaks. The stimulus bill approved in February included an $8,000 tax credit for first-time home buyers — at a cost of about $14 billion for the year. That’s set to expire, but there’s talk in Congress of extending or even expanding it. A much bigger deal is the income tax deduction for mortgage interest paid — which has been with us as long as there’s been an income tax — at a cost estimated by the Congressional Joint Committee on Taxation at $80 billion this year. The deduction for property taxes costs an additional $16 billion, as does the tax break on capital gains on the sale of owner-occupied houses. There are many other, smaller subsidies aimed at low-income home buyers. But the bulk of the tax benefits flow to the upper end of the income spectrum. And to the coasts as well: a study by two Wharton School economists found that homeowners in high-priced regions in California and on the Eastern seaboard suck up most of the gains. Housing subsidies have side effects too. For one thing, they push us to buy rather than rent. There’s a positive side to this, as homeowners tend to take better care of their property and their neighborhood than renters do. But there’s a negative one too, particularly in times of economic upheaval like this, as homeownership becomes an economic ball and chain that keeps workers from moving to areas where jobs are more plentiful. Subsidies also tempt us to buy more house than we would otherwise, a wasteful use of capital — not to mention of the energy it takes to heat and cool large houses. Finally, subsidizing house purchases drives up prices. That can be a boon to some sellers but not to renters or first-time buyers. Rising prices are always good news, though, for real estate agents, mortgage lenders and homebuilders. The higher prices go, the bigger their cut of the action. These groups are powers in Washington. The National Association of Realtors gave more money than any other group to candidates in the last elections , according to the Center for Responsive Politics, and its 1.1 million members can do a lot of lobbying. Hence the subsidies for homeownership that never go away. In 1961 departing President Dwight Eisenhower warned of “the acquisition of unwarranted influence” by what he dubbed the military-industrial complex. Maybe it’s time to call out the real estate — industrial complex. See pictures of Americans in their homes.
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