http://www.realmortgagenews.com/archive/some-useful-resources/

Thank you.

What you assert about anti-sprawl policies is an additional but orthoginal cause of housing inflation. Additionally, these policies also cause sprawl to occur just beyond the bounds of the controled region, and are as equally short sighted as the mortgate deduction.

But the right way to settle the argument would, I suspect, be to compare the amount of housing units built or in process of being built in King County against the number of family “units” (e.g. groups of people who want to live together) in the area. But I don’t have those numbers off hand.

The primary cause of housing inflation is anti-sprawl policies enacted by large metropolitan areas (like King County, WA where I live). If you prevent expansion outward then the available housing becomes dramatically more valuable. We have a serious supply shortage here and that is a direct result of restrictions on expansion.

Who benefits? Current real property owners, especially the mega-owners whose families have been here forever and have the local governments in their back pocket. They are still able to develop any land they have because they can “backdoor” the permitting process. Not so for you and me.

As for tax policy, the real blockers of true reform are the accounting lobby. If any widespread simplification of the tax code were to occur businesses like H&R Block would go under the next week. Large lobby groups have the weight (spelled c-a-s-h) to keep the bureaucracy in place that keeps them rich and powerful. If you think that’s going to change then you’re dreaming.

I once did such a comparison very informally with a friend of mine from Vancouver when we were both looking for houses and it did appear that houses in Vancouver (at the time) were cheaper than Seattle by an amount that more or less seemed to match the mortgage deduction.

If the government gives everyone who buys ice cream $1 then the price of ice cream will go up $1. The real consequence of the mortgage deduction is to take money from people who don’t own houses and give it to people who are selling houses. As you point out, builders are the biggest beneficiaries.

I once observed that houses are purchased not based on price but actually based on “how much can I afford each month.” The tax loophole effectively lowers that monthly cost, and as a result sellers can demand a higher price. This leads effectively to the inflation of housing costs. There is a perverse inverse relationship to interest rates here as well. The higher the interest rate, the greater the deduction, and the lower the effective monthly cost.

The biggest losers of the elimination of the loophole would be people selling homes, especially those selling a LOT of homes. Folks like the land developers who stamp out sprawling cookie-cutter suburban subdivisions (yes, I am bitter). With out the extra incentives, they would either have to lower their prices, sell smaller houses, or go out of business. None of which would be bad. I’m all for the elimination of the loophole.