By Peter Ricci
For months now, real estate professionals and industry analysts alike have pondered the fate of the mortgage interest tax deduction (MID), but according to panelists at the Zillow Housing Forum late last week, we should brace ourselves for some considerable change to what is often referred to as the third rail of housing policy in the U.S.
Such a view is surprising, at least initially, given how both political parties have gone out of their way to endorse MID; however, given the state of our fiscal affairs, alterations to MID, which costs the government as much as $90 billion a year, are now being seen as an almost inevitable decision.
Zillow Housing Forum – The Day the MID Died?
As Andrea Brambila chronicled in an exhaustive report on Inman of the Zillow Housing Forum, the event’s panelists discussed a number of interesting ideas on MID:
- Richard Green, the director of the USC Lusk Center for Real Estate, said that with mortgage interest rates being at all time lows, the opportunity is perfect for changes to MID.
- The panel also debated some of the negative products of MID. For instance, Green argued that because of MID’s perks, U.S. homeowners are tempted to hold on to debt longer than other industrialized countries, such as the U.K., where consumers take on similar mortgages but pay them off faster; similarly, Narayana Kocherlakota, the president of the Federal Reserve Bank of Minneapolis, said that MID often inspires consumers to take bigger mortgages than necessary – which could, in the event of another housing boom, destabilize the financial sector.
- Dowell Myers, a professor at the USC Sol Price School of Public Policy, suggested an interest revision – eliminate MID for older, more affluent homebuyers, but allow it for people under the age of 35, so that the children of baby boomers are not “spooked away” from homeownership.
Lagging Support for Mortgage Interest Deduction
As the Zillow Housing Forum spotlight, the mortgage interest deduction has never been very popular with analysts. In a recent survey by Pulsenomics, just 11 percent of respondents support leaving MID alone, with 60 percent supporting a complete elimination.
But for it’s part, the National Association of Realtors has been active as ever in support of the measure, making it a focal point of its Realtor Party initiative and investing in a massive email campaign to 75 million homeowners to drum up support for the deduction.