The Tax Subsidy for Owner-Occupied Housing in the United States

Strategic Insights -

The tax system in the United States provides a significant subsidy to homeowners through the mortgage interest deduction and other tax benefits. The total subsidy is estimated to be around $110 billion, with the majority coming from the deductibility of mortgage interest. However, the subsidy is not evenly distributed among homeowners, with those in high-income households and those living in high-cost areas receiving the largest benefits. The subsidy is also a regressive tax policy, as its value increases with the homeowner's income and housing expenses.

Key Takeaways:

  • The total tax subsidy for owner-occupied housing in the United States is estimated to be around $110 billion, with $67 billion coming from mortgage interest and $25 billion from state and local property taxes.
  • The subsidy is not evenly distributed among homeowners, with those in high-income households receiving the largest benefits.
  • The subsidy is regressive, with its value increasing with the homeowner's income and housing expenses.
  • The majority of the subsidy benefits homeowners in high-cost areas, such as California and New York.
  • The subsidy does not discriminate between equity investment and mortgage investment, thus not discouraging leverage.
  • Eliminating the mortgage interest deduction would not have a significant impact on existing homeowners who have already paid off their mortgages, but would increase the cost of acquiring a house for younger, lower-income homeowners.

Statistics:

  • The average leverage in the United States is around 35% (Todd Sinai).
  • The total tax subsidy for owner-occupied housing is estimated to be around $110 billion (Todd Sinai).
  • Mortgage interest deduction is estimated to be around $67 billion (Joint Committee on Taxation).
  • State and local property taxes are estimated to be around $25 billion (Joint Committee on Taxation).
  • Light taxation on capital gains is estimated to be around $17 billion (Joint Committee on Taxation).
  • The equivocation rate of mortgage interest deduction for homeowners in 65 and older (Carina Nyberg).
  • The percentage of homeowners itemizing in different income categories (Todd Sinai).
  • The average tax rate of homeowners in different income categories (Todd Sinai).
  • The average house value of homeowners in different states (Joe Gyourko and Todd Sinai).

Sources:

  • Todd Sinai, Associate Professor of Real Estate, Wharton School, University of Pennsylvania.
  • Ingrid Ellen, Associate Professor of Public Policy & Urban Planning, NYU Wagner and Furman Center for Real Estate & Urban Policy.
  • Jim Poterba, Research Director, Asset Building Program, New America Foundation.
  • Joe Gyourko, Co-Director, NYU Wagner and Furman Center for Real Estate & Urban Policy.
  • Federal News Service, Inc. (2009)