Debate over Mortgage Interest Deduction, Government Role in Housing

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There was sharp disagreement among participants in at least
one panel at a forum on the future of housing sponsored by the National
Association of Home Builders (NAHB) and produced by CQ Roll Call.  Fellow panelists agreed while that the private
sector needs to play a greater role in mortgage financing maintaining some
level of federal support
is essential. 

Peter
Wallison of the American Enterprise Institute said lowering the conforming loan
limits of government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac
over time will allow the private sector to come in and pick up that business.  “If you simply made those changes and
authorized the withdrawal of the GSEs, you would find we would gradually move
to a completely private system, which is where I think we should be
going,” he said.

 Michael Calhoun,
president of the Center for Responsible Lending retorted that “Private capital
by itself will not secure a safe market and most importantly, private capital
during a down market is least likely to be there.”  Georgetown University Law Professor Adam
Levitan concurred, saying private money dries up when the going gets tough.

Michael Stegman, counselor to the Secretary of the Treasury for Housing Finance
Policy told the audience “We know how much more serious the [housing and
economic] crisis would have been without the FHA stepping up.”

Another panel on tax reform drew broad general agreement that
the mortgage interest deduction (MID) plays a key role in shaping housing
demand
, while differing in their evaluation of current policy.  NAHB economist Robert Dietz quoted the Tax
Foundation that repealing the MID and lowering marginal tax rates would cause
the GDP to decline by $100 billion annually. 
It would also cause home values to fall. 

Anthony Randazzo, director of economic research at the Reason Foundation, said
he opposes the mortgage interest deduction and believes that tax policy should
not be set to achieve social purposes.   “Do we want to support middle class or low-income home owners? Then let’s
just provide an explicit subsidy to people we want to, and then find a middle
ground,” he said.

Dr. John Weicher, a director of the Hudson Institute’s Center for Housing and
Financial Markets, rejected the idea that the mortgage interest deduction is a
tax distortion.  “Keep in mind if
you are a home owner you have an asset and consumption,” he said.
“You are a landlord renting to yourself. It is silly to think of this as
simply a consumption when it is the biggest investment that nearly anyone is
going to make.”

The forum was keynoted by two of the ten co-sponsors signed
on to S 1217, the Housing Finance Reform and Taxpayer Protection Act of 2013;
the Corker-Warner bill.  Co-sponsors Jon
Tester (D-MT), Bob Corker (R-TN) were joined by Johnny Isakson (R-GA), a member
of the committee studying tax reform

Tester said the senators had worked hard to make sure the
30-year, fixed-rate mortgage remains a viable option
.  “This is something consumers want and
expect. I don’t think we could have a viable 30-year note in a purely private
market.”

Corker who, along with Mark Warner (D-VA) filed S 1217, said he thought the 10
senators who had weighed in on the bill had made a difference.  “I think we have struck a very good
balance. The 10 percent capital piece is a very, very important element.
Another component that was very important was having a federal backstop.”  As the process moves forward he expects to
see improvements to his bill as well as changes to a housing finance proposal
pending in the House.

In terms of tax reform, Sen. Isakson said the Senate Finance Committee is
prepared to move forward if it gets “the opportunity.”   Every provision in the tax code, he said,
including the mortgage interest deduction and Low Income Housing Tax Credit,
must be justified in terms of “what they produce for the country. If you
can’t make a case for your tax provision, it should not be in there.”

“I can make a great case for the preservation of the mortgage interest
deduction and I can make a phenomenal case for low and moderate income housing
tax credits in terms of the payback to the country, but those arguments have to
be won and lost when you are truly doing a major reform,” the former real
estate broker said. 

Another speaker at the forum, Eric Belsky, managing director
of the Joint Center of Housing Studies at Harvard University said the housing
downturn had led to a remarkable slowdown in household growth.  “There is not a strong recovery in
household formations, but we are seeing signs of that happening. People don’t
want to live with their parents into their 30s; they are doing it out of
economic necessity.”

The future of homeownership looks bright, he said.  “Nineteen out of 20 people say they plan
on buying a home somewhere in the future if they are under the age of 45.  You can lock in housing payments with a fixed
rate mortgage today or look at higher rents in the future. A lot of people will
look at that calculation and say ‘I think it is time to buy a home.'”

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