Mortgage Deductions and the Prospects for More Affordable Housing

Citizen Wealth Financial Justice

New Orleans   The Republican tax bill is all over but the shouting, and that will last for a long, long time. Given the unpopularity of the bill in all of the polls, it will reverberate into the 2018 midterm elections, possibly flipping control of Congress, and likely will still be an issue for many in 2020 as well. Given the complexity of the bill and the last minute, slapdash nature of some of the amendments, it will take a bit of unraveling before the full measure of its likely impact will be known.

One of the big headlines has to do with ratcheting down the mortgage interest deduction. For low-and-moderate income families, that’s an interesting issue. Last check, the conference split the difference between allowing it up to one-million for a new home in the Senate version versus a half-million in the House version, at $750,000 as the ceiling. For the vast majority of low-and-moderate income families around the country, there will be no impact at all. In fact the fears that topping off the deduction will lower prices on the coasts is probably good news for such families if there is some housing deflation for a change that trickles down.

In normal times, shrinking the mortgage interest deduction would be great news. In writing, Citizen Wealth, I was shocked at how much of the so-called social welfare segment of the federal budget is given to the lost tax revenue from this deduction, especially since so much of the benefit is skewed towards wealthier families buying more expensive houses more easily, and therefore harvesting the greater part of the benefit. It was hard not to advocate cutting the deduction in order to beef up other social welfare benefits for poorer families. Unfortunately, the Republican tax bill is doing the right thing for the wrong reason in transferring the increased tax revenue to a decrease in taxes for corporations and the superrich. Opportunity lost. When the pendulum swings back on taxes in the future, hopefully the deduction won’t change much, and the redistribution will be more equitable than in the time of Trump.

Analysts argue that housing developers get some benefits in pass through provisions that benefit Trump and his family and others. All of this should mean that more rental units are constructed. Sadly, without incentives for affordable housing developers, the new units, though much needed given the shortages in so many cities, will likely be market rate, and not wildly helpful in meeting the huge affordable housing crisis in the country.

An unanswered question and potential outcome of this tax bill, as I look for a silver lining, might be in helping move the economic culture away from the white-picket fence of home ownership to increased programs for stable, long-term tenancy and what those units and communities will require. Maybe, just maybe, that will force the question of affordable housing and even public housing higher on the policy and budgeting agenda and allow home ownership desires to extend more towards rehabilitating the vast stock of abandoned housing and infill lots in many cities in urban America.

Hope springs eternal.