The mortgage interest deduction raises home prices and fails to encourage homeownership

Evidence

However, economists generally agree that the mortgage interest deduction does virtually nothing to encourage people to buy homes. Instead, research suggests that it rewards a behavior that was probably going to occur anyway (again, like marriage). But it does change two associated behaviors. First, the tax deduction encourages homebuyers to purchase larger and more expensive homes, so they can maximize the deduction. That behavior creates a market response that increases home prices in general, making it more difficult for first-time homeowners to be able to afford to purchase. (If you’re reading this and wondering who, exactly, does think the mortgage deduction is a good idea, the answer is realtors, developers, and their lobbying groups.) — Dorothy A. Brown, The Whiteness of Wealth, 186

However, economists generally agree that the mortgage interest deduction does virtually nothing to encourage people to buy homes. Instead, research suggests that it rewards a behavior that was probably going to occur anyway (again, like marriage). But it does change two associated behaviors. First, the tax deduction encourages homebuyers to purchase larger and more expensive homes, so they can maximize the deduction. That behavior creates a market response that increases home prices in general, making it more difficult for first-time homeowners to be able to afford to purchase. (If you’re reading this and wondering who, exactly, does think the mortgage deduction is a good idea, the answer is realtors, developers, and their lobbying groups.) — Dorothy A. Brown, The Whiteness of Wealth, 186

Categorization

• XREF: Parallels the Milgrom/Roberts point that institutions channel behavior by changing incentives — here lawmakers’ creation of a ‘folk legend’ that rewrites how citizens think about homeownership. — connects to: Financialized ownership of housing and land degrades living conditions and inflates asset prices — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 87
• SEED: Essay angle: the policy that everyone believes subsidizes homeownership does the opposite — it prices first-time buyers out while enriching realtors and developers.
• corroborated: 3 independent passages support this claim — Dorothy A. Brown, The Whiteness of Wealth: How the Tax…, 186