Reuters
A woman jogs by new housing construction in Darnestown, Maryland, October 23, 2012. New US single-family home sales surged in September to their highest level in nearly 2-1/2 years, further evidence the housing market recovery is gaining steam.
Article Highlights
- As policy makers reevaluate popular tax breaks in the face of growing revenue needs, they should carefully rethink the rationale for favoring homeownership over renting.
- According to the Congressional Budget Office, the effective tax rate on owner-occupied housing is negative, while the effective tax rate on rental housing is around 18 percent.
- Unfortunately, the evidence for the spillover benefits of homeownership is weak at best.
- Reducing or eliminating subsidies for homeownership may therefore both raise revenue and improve economic performance.
In a radio address on May 11, President Obama argued that "few things define what it is to be middle class in America more than owning your own cornerstone of the American Dream: a home." This popular narrative is found on both sides of the political spectrum, along with strong political support for tax policies that heavily favor owner-occupied housing over rental housing. According to the Congressional Budget Office, the effective tax rate on owner-occupied housing is negative, while the effective tax rate on rental housing is around 18 percent.
This emphasis on homeownership is often justified by the claim that homeowners are more likely than renters to be good citizens who contribute to their communities. Another claim holds that the children of homeowners are better off than the children of renters. For example, a National Association of Realtors television ad asserts that "homeownership builds communities" and "contributes to higher self-esteem and better test scores" for kids.
The full text of this article is available on US News & World Report’s website. It will be posted to AEI.org on Friday, July 5, 2013.
