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The Golden Age really is over

By Michael J. Smith on Friday February 18, 2011 10:36 AM

(The Golden Age in question is of course Eric Hobsbawm's of the "short twentieth century"; though he ended his in 1975, I think.)

I neglected to scribble about this item when it appeared last week; but it concerns a favorite hobbyhorse of mine:

Administration Calls for Cutting Aid to Home Buyers

The Obama administration [calls] for the federal government to cut back its broadly popular, long-running campaign to help Americans own homes. The three ideas that the report outlines for replacing Fannie and Freddie all would raise the cost of mortgage loans and push homeownership beyond the reach of some families....

[A]dministration officials said they had concluded the country could no longer afford to sustain its commitment to minting homeowners. Better to help some people rent.

Federal programs subsidized nine in 10 mortgage loans made last year. If the Obama administration succeeds, that could plummet to a mere one in 10 loans by the end of the decade.

First good thing Obie has done, if you ask me, though it probably won't win him many friends apart from me, and I'm likely to prove fickle.

That's an amazing statistic -- Federal programs subsidized nine in ten mortgages. Does that include the mortgage interest tax deduction, I wonder? If so, you'd think it would be ten out of ten.

I was also amazed to read that

30-year fixed-rate mortgages [are] a product that has never existed without government support.
Pull the plug, I say. People want to own houses? Fine. But what social purpose is served by paying 'em to do it?

Rhetorical question, of course. I know the answer: the enrichment of real-estate developers, the further enrichment of banks, and the pacification and stultification of the public.

Comments (11)

Paul Alexander:

What do you propose in it's place with things the way they are? Don't you think those same investors will find a way to screw us through exorbitant rents? Considering that housing is the largest expenditure for most households, it seems risky to go into life on a fixed income with no idea of what your rent might be down the line. At least if you own, you can, for the most part, assure yourself at least a roof over your head. Of course there are surely better ways to get people in houses or keep us sheltered than shoveling money in the direction of the financiers, but the possible current alternatives look grim to my eyes.


Obama really wants to destroy the last vestige of his base, doesn't he! Of course it's destroyed already, by forces bigger than him, his true base in Wall St.

But your argument confuses proximate causes for final causes. It wasn't the federal mortgage programs that caused the collapse, it was the Wall Street abuse of them that did (by Wall Street I mean the whole fish tank of financial speculation, from corrupt local appraisers to corrupt bond agencies to the mad scientist-Big swinging appendages at the top.)

The worst thing about the original program was that it was tilted toward the middle class, but as such it was not any worse than many other New Deal type programs. A similar program in Egypt today would be universally hailed (except by our rulers) as deliriously progressive.

I'm with MJS. Housing subsidies plus progressive income and property taxes are the progressive policy.


"Research compiled by Edward Glaeser and Jesse Shapiro of Harvard University has shown that mortgage interest deduction is an ineffective tool for encouraging homeownership. This is
primarily because the benefits of the eduction primarily go to wealthier households who would be homeowners whether the deduction existed or not. Wealthier households benefit more from the tax deduction because they are more likely to itemize deductions, they tend to have higher mortgages on more expensive homes and they have higher marginal tax brackets (so the deduction is worth more). According to a paper prepared by the Tax Policy Center of the Urban Institute and Brookings Institution, 68.4 percent of the mortgage tax deduction subsidy goes to households whose incomes are in the top twenty percent of all taxpayers and 90 percent of the subsidy goes to the wealthiest 40 percent of households."

What do you propose in it's place with things the way they are?
I propose that things should be other than the way they are, and that we should make them so.
But your argument confuses proximate causes for final causes. It wasn't the federal mortgage programs that caused the collapse
I don't think I made any argument about causation at all. However, if you put a gun to my head and asked me why the bubble burst -- well then, I would say, Because it was a bubble.
Peter Ward:

Is there really any evidence that competition from the sales market keeps rend prices down? Especially when speculation means properties values are completely disconnected from demand. E.g., I couldn't easily afford to buy a place even at post bubble-burst prices as it is. If my landlord decides to double my rent tomorrow I my ability to buy doesn't somehow magically double. It stays the same--i.e., I still can't afford to buy and would have to find a cheaper rental.

If landlords raise rents too much people will either find cheaper places or become homeless. In either case, the landlord loses its tenants. And may trigger and unwelcome, angry backlash.* Only a small margin of population resides in the zone where renting and owning "compete", the rest are either too rich for it to matter or too poor to do but rent.

And the "security" of ownership--presumably one's house is only as secure as the job that pays for it.

*The activism of renters unions, like GOLES here in NYC, turns out to be surprisingly effective already. And renting does at lot more to encourage activism than being mortgage--and therefore shitty job--bound.


If the maximum mortgage interest deduction were set at the level of the median mortgage's interest, then most of the 'waste' of the 'ownership encouragement' tax expenditure would evaporate. Homes more expensive than the median home would be and should be treated like consumption items... like big screen TVs and bass boats, etc. ... not subsidized. That such a reasonable policy could never get a hearing in the Congress is another demonstration of the extent to which our system of government is owned by the moneyed interests.

The rent/own contrast is not a genuine topic of debate (don't know how to say that properly) in my opinion because without the socialization of all land holding (not on the horizon, IMO) someone is the owner of rental units. Where I grew up the wealthiest guy in town rented shacks (down by the tar ditch that flooded annually) to black people. They are still occupied, though the flooding may have been reduced and the black people have also moved up the hill since the 1970's as owners (and good on 'em).

Pet topic of mine. I am a lifelong renter, BTW.

Everyone gets to deduct their mortgage interest. Businesses can do it. Landlords can do it on rentals. So can individual home owners. If you limit or reduce the mortgage deduction for individual homeowners, they will be the only taxpayers not allowed to deduct the interest. That doesn't strike me as particularly fair.

As a historical note, when the US re-introduced the income tax in the 1910s, all interest from all sources was deductible. Over time, what counts as "income" for tax purposes has been broadened while the rates themselves have been lowered. The regulations for determining taxable income are brain-breakingly complex, and a huge waste of money, time, talent, intelligence, etc.

JP, who said anything about cutting off only individuals?

The regulations for determining taxable income are brain-breakingly complex
Indeed they are. So if one wanted to cut the Gordian knot... wouldn't one just throw it all in the same pot? Profits, capital gains, lottery winnings, you name it.

In Canada interest on your mortgage isn't deductible. Canadian home ownership rate: 68.4 percent. US rate: 68 percent.

In Canada interest on your mortgage isn't deductible. Canadian home ownership rate: 68.4 percent. US rate: 68 percent.
Interesting. It would also be interesting to compare the curve of prices paid. Or better yet, some curve of prices paid, or monthly mortgage payments, as a percent of household income. I've always suspected that most of these subsidies end up being captured by somebody other than the poor schmuck with the mortgage. But no doubt this has been studied?

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