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Did U.S. Tax Policy Contribute to the Housing Bubble?
Name:
Roger Salzgeber
Question: How much does (did) federal tax policy contribute to the housing bubble? If it was a contributing factor, how should that policy be reformed?
Paul Solman: Not much, I wouldn't think. Tax deductibility of mortgage interest has been around since the advent of the income tax itself, early in the 20th century. It predates the bubble by almost a century.
-- Posted June 26, 2009 | Comments (1) | Permalink
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I understand American home-buyers (and investors) get tax concessions on their mortgage interest costs. This can reinforce rash buying (and borrowing) decisions when other factors like job/income security seem OK ... and thereby inflate market prices. By comparison, Australian buyers DON'T get tax relief on mortgage interest costs for their owner-occupied home - but may for investment properties only.
The Australian home market does suffer a much milder version of the present US problem - also mitigated by still having a net home supply deficit, so that foreclosed homes may be resold (relatively quickly.
It seems the US home-buyer's purchasing ability needs some restraints - like lower minimum lending percentages (of home purchase price) and phasing out the tax deduction on owner-occupied homes.