TY - JOUR
T1 - Mortgage interest deductions and homeownership
T2 - An international survey
AU - Bourassa, Steven C.
AU - Haurin, Donald R.
AU - Hendershott, Patric H.
AU - Hoesli, Martin
PY - 2013
Y1 - 2013
N2 - The aim of this paper is to review the international evidence on the impacts of mortgage interest deductions (MID) on homeownership rates. To understand the relationship between the deductions and ownership rates, we develop a model of housing tenure choice. In that model, the probability of becoming a homeowner is a function of the relative cost of owning and renting, borrowing constraints, household income, and a set of taste variables. The relative cost of owning and renting is a function of house prices and the annual user cost of owner-occupied housing. Tax policies affect the user cost of owner-occupied housing and, in turn, the probability of becoming a homeowner. They also affect the price of housing due to capitalization effects. The empirical evidence suggests that, contrary to popular wisdom, the deduction generally does not increase the ownership rate. This result is likely due to the fact that the MID is capitalized into house prices, especially where housing supply is inelastic.
AB - The aim of this paper is to review the international evidence on the impacts of mortgage interest deductions (MID) on homeownership rates. To understand the relationship between the deductions and ownership rates, we develop a model of housing tenure choice. In that model, the probability of becoming a homeowner is a function of the relative cost of owning and renting, borrowing constraints, household income, and a set of taste variables. The relative cost of owning and renting is a function of house prices and the annual user cost of owner-occupied housing. Tax policies affect the user cost of owner-occupied housing and, in turn, the probability of becoming a homeowner. They also affect the price of housing due to capitalization effects. The empirical evidence suggests that, contrary to popular wisdom, the deduction generally does not increase the ownership rate. This result is likely due to the fact that the MID is capitalized into house prices, especially where housing supply is inelastic.
UR - http://www.scopus.com/inward/record.url?scp=84894191111&partnerID=8YFLogxK
M3 - Review article
AN - SCOPUS:84894191111
SN - 0927-7544
VL - 21
SP - 179
EP - 203
JO - Journal of Real Estate Literature
JF - Journal of Real Estate Literature
IS - 2
ER -