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The mortgage interest deduction and its impact on homeownership decisions

Hilber, Christian A. L. and Turner, Tracy M. (2010) The mortgage interest deduction and its impact on homeownership decisions. SERC Discussion Papers, SERCDP0055. Spatial Economics Research Centre (SERC), London School of Economics and Political Science, London, UK.

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Abstract

This paper examines the impact of the combined U.S. state and federal mortgage interest deduction (MID) on homeownership attainment, using data from 1984 to 2007 and exploiting variation in the subsidy across states, over time and due to inter-state moves. We test whether capitalization of the MID into house prices offsets the positive effect on homeownership. We find that the MID only boosts homeownership attainment of higher income households in less tightly regulated housing markets. In more restrictive places – typically larger coastal cities – an adverse effect exists. The MID is an ineffective policy to promote homeownership and improve social welfare.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.spatialeconomics.ac.uk/SERC/publication...
Additional Information: © 2010 The Authors
Library of Congress subject classification: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
Journal of Economic Literature Classification System: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H22 - Incidence
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H24 - Personal Income and Other Nonbusiness Taxes and Subsidies
H - Public Economics > H7 - State and Local Government; Intergovernmental Relations > H71 - State and Local Taxation, Subsidies, and Revenue
R - Urban, Rural, and Regional Economics > R2 - Household Analysis > R21 - Housing Demand
R - Urban, Rural, and Regional Economics > R3 - Production Analysis and Firm Location > R31 - Housing Supply and Markets
R - Urban, Rural, and Regional Economics > R5 - Regional Government Analysis > R52 - Land Use and Other Regulations
Sets: Departments > Geography and Environment
Research centres and groups > Spatial Economics Research Centre
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: SERCDP0055
Date Deposited: 27 Jan 2011 10:55
URL: http://eprints.lse.ac.uk/31759/

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