Home Mortgage | American Real Estate: The ... - refinance loan info

February 3, 2012 ? 7:10 am

The house with the white picket fence ? surrounded by an ample yard with lush grass, hedges, and trees that provide comfortable roosting spots for songbirds ? is an ingrained part of the American Dream, as iconic as apple pie, baseball, and Whistler?s mother. It?s an appealing image in many ways, and federal policies ? such as the home mortgage interest deduction ? have helped sustain it for decades.

Although many people assume that fostering an ?ownership society? is an important thing for our government to be doing, a professor of economics who also directs the Kennedy School?s Taubman Center for State and Local Government and it?s Rappaport Institute of Greater Boston, Edward Glaeser illustrates in his paper ? Rethinking the Federal Bias Toward Homeownership ? that homeownership has a dark side. Policies that blindly encourage people to purchase homes while making it harder for them to rent apartments in or near the city, may not be in the best interests of our country or the planet as a whole.

One (possibly unintentional) consequence of the federal policies is to promote low-density suburban or exurban living at the expense of highdensity urban living in multi-unit dwellings, which is environmentally preferable because on average, it reduces energy usage per person, reduces pollution and greenhouse gas emissions, and hence reduces the overall impact on climate.

In his paper, Glaeser explains how this works. First, and perhaps most obvious, the mortgage interest deduction gives people incentives to buy homes rather than to rent apartments. Buyers can ? and do ? use the deduction to purchase condominiums in more urban settings, but detached, single-family homes tend to appeal to people who want to make improvements to their property as they see fit, without having to consult multiple owners. Moreover, the tax incentives make investments in homes more attractive than other investments that might yield greater returns if they weren?t taxed. ?Because the home mortgage interest deduction subsidy scales up with the size of the mortgage, it also functions as a subsidy for larger homes and, under some conditions, larger lots as well,? Glaeser writes. A tax of this sort is not only economically regressive ? because it provides a greater benefit to richer people who can afford to spend more ? it also pushes people to reside farther from cities, where they?re likely to drive more and use more energy to heat, air-condition, illuminate, and run appliances in their larger (perhaps oversized) dwellings. This tax policy, in other words, is bad news for the environment and runs contrary to the nation?s avowed agenda of curbing energy use and trying to mitigate global warming.

And that?s just one problem. Another is the ?barriers to multiunit buildings that exist in much of the United States,? Glaeser says. ?Although these barriers are enacted at the local level, they affect the nature of America?s built environment and even the distribution of population across the United States.? Simply put, many suburbs have made it hard, if not impossible, to build the kind of dense housing that is normally rented. Studies of the Boston metropolitan area, undertaken by Glaeser and colleagues and published by the Rappaport Institute, found that in 127 out of 186 towns within 50 miles of Boston, literally no land is available for the construction of multifamily dwellings that require no special building permits.

Glaeser argues that these local policies, which leave few options other than detached homes and the diffuse style of development that accompanies them, need to be changed, because they are shaping the complexion of the entire country. ?We ought to be rewarding smarter land-use policies, perhaps by giving out ?density tax credits? to people living in high-density areas,? he suggests.

He is not out to do away with homeownership altogether. He believes that our citizens should have a choice in the type of dwellings they inhabit, as long as they bear the social costs associated with their decisions ? costs that are not currently being paid. Nor is Glaeser trying to kill the American Dream. He just wants to give it a long-overdue update.

By Steve Nadis, Harvard Kennedy School

Tags: home mortgage

Source: http://refinanceloanbank.com/home-mortgage-american-real-estate-the-hidden-costs-of-an-ownership-society/

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