US Subsidies for Home Ownership

Why has America defined its wealth so much as a function of big beautiful homes? The Federal government has been subsidizing home ownership since 1913 when the modern Federal income tax system was reinstalled and included a deduction for home mortgage interest. That was the first federal subsidy for home ownership but far from the last. Since that time the US has added tax deductions for mortgage interest on your second home and the property taxes you pay on your first and second homes. And then if you make money on your home and live in it for at least two years you and your wife pay no taxes on the first $500,000 in profit on the home. And then of course the government subsidizes Freddie Mac and Fannie Mae with implied government guarantees and subsidies other home borrowing via vehicles like VA and FHA home mortgages.

How much more can the government do? Hopefully not much at all. A good deal of the run up in housing prices has been a function of all these subsidies. And this run up in prices led to the perception that you just can’t lose buying a home during the periods where these subsidies helped drive up the prices.

When the government starts subsidizing things you know you will get more of it than you would have had absent the subsidy. But what are the unintended consequences? The US government’s own finances are so tied to the ongoing viability of the US housing industry that it might be catastrophic if it suddenly ended this subsidy game. But for god’s sake please don’t add any more housing subsidies and please stop the subsidy business elsewhere because more subsidies will screw up those markets as well.