Home Ownership This High?

Max Sawicky sawicky at epinet.org
Mon Oct 26 08:25:44 PST 1998

State of Working America has chapters on wages, family income, and wealth, but nothing on home ownership per se. The wealth chapter includes homes within a broader class of assets.

As Brad noted, wages have stagnated or decreased, while median family income rose on average after 1971, albeit much more slowly than before. A consistent negative factor has been the change in family type (e.g., more one-parent/one-earner families); a positive one has been more hours worked and more family members employed.

Policies have subsidized home ownership. These have been anti-urban policies. They include building and over-building of highways at the expense of mass transit; deductability of mortgage interest and property taxes for homeowners; fragmentation of local government which permits suburbanites to exploit center cities (e.g., use public services and avoid taxes), under-taxation of gasoline, and the implosion of Federal aid to cities.

The deductibility of mortgage interest and property taxes for homeowners does not parallel that for landlords in one important respect. Commercial suppliers of housing must pay income taxes on their rental income, against which expenses such as interest and property taxes are deductible. These are also expenses for the homeowner, but his or her implicit rental income is not defined as taxable income. So the homeowner gets the deduction without the credited income.

Another angle is the savings one. Housing as an asset is subsidized by the non-taxation of implicit income, as well as by the preference granted to capital gains. It is also possible to use home equity loans, on which interrest is deductible against other income, to buy tax-preferred financial assets whose capital gains are also under-taxed, providing a double-whammy of after-tax income. (Don't try this at home, kids.)

Ergo private ownership of housing is subsidized by the tax code. A broader aspect of subsidy is the deductibility of interest for business in general, not just homeowners. In principle interest costs are just another payment to capital, like profits or dividends, and could be taxed to the payer under uniform treatment of all capital income.

If interest was taxed consistently to the recipient, this would be no problem, but much interest income leaks out of the tax base for one reason or another.

A general consequence is the favoring of debt over equity, and greater financial instability.


Max B. Sawicky Economic Policy Institute Suite 1200 1660 L Street, NW Washington, DC 20036 202-775-8810 202-775-0819 http://epinet.org http://tap.epn.org/sawicky Opinions expressed above are not necessarily those of anyone else at EPI.

-----Original Message----- From: Alessandro Coricelli [SMTP:alessandro.coricelli at snet.net] Sent: Monday, October 26, 1998 8:08 AM To: lbo-talk at lists.panix.com Subject: Re: Home Ownership This High?

Maria wrote :

>>Quite frankly, I asked the question because I was
>>under the impression that home
>>ownership was at much lower levels. Now I find
>>out it's been reasonably close to 2/3
>>of the population for 30 years now!
>>How can that be, given the rising cost of buying a
>>home and the stagnant state of real
>>income for most people? Or am I mistaken about
>>that too?

Brad answered :

>Stagnant real *wages* for males (if you believe that the CPI is an accurate
>measure of inflation (which I have begun thinking it is not, or rather,
>that for the poor the CPI is pretty accurate and for the rest it is no)).
>Conditional on your having two adults in the household, however, family
>incomes have risen a bunch with increasing female labor force participation.
>How much, if any, of this increase in *incomes* is an increase in *material
>welfare* is a hard question. But it does mean that households have more
>cash income with which to pay their mortgages.

I'm not sure, but I believe that home ownership is function of demographics too. At least part of the US phenomenon could be explained(statistically)by the "exodus" from big cities. Am I wrong ?


Alessandro Coricelli tel(203)457-2065 fax (203)457-0508

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