Homeownership Maintains Decades Old American Inequality

By Free Radical

econpic (3)When thinking of “entitlement” programs, many people immediately think of food stamps, social security, or possibly Medicaid. A recently published nytimes.com long form article by Pulitzer Prize winning writer Matthew Desmond, argues that one of the largest forms of government aid does not go to the poor, but rather to middle class and wealthier homeowners.

The mortgage interest deduction, or MID, allows homeowners to deduct mortgage interest on their first and second homes. In 2015, a whopping $71 billion was spent on the MID alone, making up more than half of all federal homeowner subsidies which totaled $134 billion.

Desmond argues that the MID policy exacerbates inequality in the US. Because tax deductions are based on mortgage interest, families who can afford to buy more expensive homes with larger mortgages disproportionately benefit from this policy. Middle income families benefit as well, but not as much as the wealthy, because they tend to buy more moderately-priced homes. Renters, however, do not benefit from MID at all.

The disparity has dire economic consequences. Homeowners have an average net worth of $195,400 while renters only average of $5,400.

Moreover, renters are likely to spend large chunks of their income on rent. The widely held US standard of “affordable” housing is that a person is not supposed to spend more than 30% of their income on housing. According to Desmond, “slightly more than half of all poor renting families in the country spend more than 50 percent of their income on housing costs, and at least one in four spends more than 70 percent.”

Desmond argues that this inequality isn’t only class based, it is also racial. Many programs starting in the New Deal era which allowed the ranks of homeownership to swell systematically excluded nonwhites. This has caused a major gap in wealth distribution in the country. It also continues to linger today as first-time homeowners often receive help from their parents who are also homeowners. Black potential home buyers are less likely to have parents who have reaped the economic benefits of property ownership.

Desmond proposes that the MID rate be capped at $500,000 per homeowner. He argues that this provision would not deter new home ownership but could save $87 billion over the next ten years. This money would prevent the uber rich from milking the system and could rather be used to provide much needed affordable housing for the poor.

Nonetheless, he argues that the MID is deeply entrenched in the American political system, enjoying widespread support from both Democrats and Republicans as many of their donors, who are disproportionately non-poor, benefit from the program. Yet, he contends that if Americans are serious about tackling inequality, it starts at home.

For more on the Desmond article, click here.


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