By Dylan Hall, PartnerOwn Team Member
One fun debate to follow is the argument between housing industry and housing academics. Most recently, the debate has centered on the mortgage interest tax deduction, which enables homeowners to deduct their mortgage interest expense as an itemized deduction on their tax returns. This deduction typically helps out people with incomes greater than $100K and is not seen as a progressive tax policy generally speaking.
Housing debates tend to follow a common thread though. Typically, academics encourage more renting and less government involvement. People in the housing industry on the other hand “nobly” advocate for the person on Main Street who can benefit from tax breaks and subsidies and cite the benefits of ownership for communities.
We at PartnerOwn find these debates interesting, albeit sometimes confusing. The academic viewpoint is one of telling consumers that homeownership does not make sense and to ultimately consider renting. This ignores peoples’ stated desire to own though. When PartnerOwn went to Chinatown in Chicago, we learned that people generally wanted to be homeowners. They took out 15 year mortgages and paid them down as quickly as possible. Housing was true wealth in their eyes. They did not want to deal with the stock market, sure they owned their own businesses, but housing was something that was tangible and real, not a statement they receive in the mail every six months from Fidelity. It is also in this neighborhood where PartnerOwn found the best community center that took care of people from children to senior citizens and was even awarding a cop for her commitment to the area for more than a decade. Shouldn’t academics be advocating for better ways to finance ownership if they are worried about the financial risks associated with ownership, not just pushing people to forget about owning?
This is not meant to ridicule housing academics. They are advocating a change of mind, taking on large businesses and the housing industry in favor of a better economic system that is less dependent on taxpayer involvement. Most mortgages last 30 years and can be used for 97% of financing. This contrasts with the Great Depression when mortgages were generally 50% of home value and lasted 3 to 5 years. We have effectively stretched the limits of credit over the past eighty years. Unfortunately, houses become more expensive when more people can get more credit to pay for and ultimately to compete for home purchases. Housing industry advocates likely benefit from an increase in the money being made available. Think of the nature of transactions and commissions at play for various stakeholders in the housing industry. Less credit means lower prices. Fewer deductions mean ownership becomes less lucrative. Why wouldn’t any good business in the housing industry express a desire for federal money to be given to homeowners?
Now, as spectators of this dialogue, PartnerOwn’s conclusion from these debates is simply that we should be skeptical of the housing industry and its blind commitment to federal taxpayer support in the name of helping out the “little man,” but that we should not ignore consumer demand to own and the community benefits that come with it. Finding a new way to finance ownership that is not dependent on deductions and debt may be just the ticket.