Housing is unique in that it is one of the few, maybe the only, assets where leverage in the form of a loan is relatively easily available to even people without a lot of assets. Where as other forms of leverage like margin loans require the borrower to already have assets for collateral. To buy a house you basically just need a reasonable job and a few thousand for the down payment.
You shift the demand curve, but not the supply curve, so now more money is chasing the same asset, so buyers pay more and sellers benefit. Same as student loans.
You also increase money supply when taxpayers “eat” the loss for defaulted loans, lowering the purchasing price of the currency in general.
Finally, the decision makers can overshoot or undershoot how much to move the demand curves, resulting in a misallocation of society’s resources. Again, see student loans and even home loans.
>Only if you subsidize it below the expected value of return.
I do not see how anyone could know this, since it requires predicting economic conditions 30 years in the future. The government is guessing just as much as a non taxpayer funded lender would, except the government does not have to worry about running out of cash.
I was referring to taxpayers subsidizing the actual loan itself, not the act of owning a home.
What are the tax incentives (in the US)?
On a federal level, all I can think of is mortgage interest tax deduction, but that was greatly neutered in 2017 TCJA, and less than 10% of Americans can benefit from it. And that is a tax incentive to borrow money to buy a home, not a tax incentive for home owners.
Only other one is 1031 exchange, but that is rarely needed for typical homeowners and is available to all real estate owners.
On a state/local level, I guess there are some locales with property tax adjustments, but other than that, I cannot come up with any.
The biggest subsidy is Fannie/Freddie buying 30 year mortgages with the now explicit backing of the Federal government.
If that didn’t exist there wouldn’t be 30 year mortgages. How that distorts the real estate market is a big open question but my guess is it drives up real estate prices.
Of course that has been a continuous policy decision for almost 100 years so it’s nothing new.
The biggest tax benefit of living in an owner occupied home is that nobody pays income tax on the rent you would pay if you were living in a house someone else owned.
... but most places don't have the stones to tax imputed rent [1]:
Belgium, Iceland, Luxembourg, the Netherlands, Slovenia, Spain and Switzerland being exceptions.
If the choices are between implementing tax on imputed rent and killing all economists by boiling them all alive, I'll gladly start gathering firewood. I'm just joking. I am all for higher taxes on everyone.
I have one condition though. If I should pay tax on imputed rent, then Google and Facebook should pay taxes everytime someone clicks on a sponsored link that takes them to their own property. Every time I bring up this idea that companies must pay taxes on funny money they spend within the organization, people yell at me. Microsoft should pay taxes Windows licenses that they use internally. No, you can't give yourself a "discount" and say well we charged ourselves zero dollars so we owe no taxes. Pay taxes on the market rate. Either make it free of cost for everyone or pay taxes when you use things internally.
> No, you can't give yourself a "discount" and say well we charged ourselves zero dollars so we owe no taxes. Pay taxes on the market rate. Either make it free of cost for everyone or pay taxes when you use things internally.
Could they just say we "licensed/sold" it at a loss, and therefore take a tax deduction?
Why? Taxes should be the minimum required to provide for the core services of government. Big governments are dangerous. Also taxes have deadweight loss.
Taxing imputed rent? That’s ridiculous. Taxing income someone might have made? Some people and countries want the government to have far too much power. If someone decides not to work, should we tax the income they could have made?
