Should we get rid of the Mortgage Interest Deduction? (MID)

Mortgage Interest Deduction. I don’t know about you, but it makes a big difference on my taxes each year…in a good way!

Before you keep reading, there are two things that you should know about me. 1. I have not been a fan of government intervention in the housing market; I did not think we should burden our kids with the debt of trying to fix our mistakes, and I really believed that any intervention would just prolong the inevitable—better to just take our lumps and get through it as quickly as possible. 2. I truly believe we are all going to have to make some painful sacrifices to cut spending and balance our budget; this is our moral obligation to ourselves and our children.

Today, we have a housing market where very few people have the means or desire to buy a home. Consequently, many of today’s buyers are investors. “Since last July cash buyers and investors have driven 70 percent of the increase in existing home sales, CNBC.com reports, while first-time buyers have been responsible for just 6 percent.” The proportion of foreign investors is increasing. Those that would be owner-occupiers and are able to buy are choosing instead to rent. Why aren’t qualified buyers buying? Because they are afraid to commit to a mortgage when they are not sure their job is safe. Because they have no desire to buy a home that is going to lose equity. Because they do not want to be saddled with a house that they cannot sell if family or job or circumstances create a need to move. Because houses take a lot of work and money, and most people have very little of either these days.

Foreclosures are notorious for being in awful condition. Another type of house that tends to fall into disrepair quickly is a house that is tenant occupied instead of owner occupied. Of course there are exceptions to every rule, but in my experience, someone merely paying rent does not maintain, clean, or seem to care about the home they live in as much as someone who is paying a mortgage.

If today’s housing market continues, we will be a nation of renters, not homeowners. This is not the legacy I want to leave for my children. I do not want my children starting their own families in houses that have not been loved and maintained or in communities where residents do not have a stake in what happens to their house or community. While we do not want homeowners that cannot afford the houses they buy, we clearly do need owner-occupied homes.

The economy needs to strengthen so it can support growth. Until this happens, there are very few buyers that will want to commit to a mortgage let alone qualify for one. I know the economy will turn around at some point, but it will do little to erase the stigma that is now attached to homeownership. At the same time we are focusing on getting the debt under control, stabilizing the economy, and growing jobs, we also need to make sure we are laying a foundation that encourages homeownership—not irresponsible, everyone-deserves-a-home homeownership, but financially responsible homeownership so that we do not continue to have whole towns that are wiped out because the surrounding homes and neighborhoods are no longer desirable to live in.

During a normal housing market, as buyers were weighing the pros and cons of renting versus owning, the mortgage interest deduction was a huge factor in the math equation. While homeownership is often more expensive when you add in the real estate taxes, HOA fees, maintenance costs, insurance, etc., the substantial tax break that the mortgage interest deduction offered was often enough to off-set the difference between renting and buying. At a time when we desperately need responsible buyers to ensure the stability and continuity of home and community, now is not the time to remove one of the last, logical, financially sound, reasons to buy.