The Welfare State for Rich Homeowners

I don't know who started it, but everyone has been talking about homes lately, and whether they are a good investment. I chimed in at The Week yesterday, noting that most analyses claiming home ownership is a categorically bad investment fail to account for the value of a home's imputed rent, which should normally comprise the majority of the financial returns people get from home ownership. In the piece, I also talk about our large federal welfare programs for home owners and the way in which they make investing in a home even more likely to pay off. Here, I put numbers to those homeowner welfare programs and provide a simple idea for improving them.

The Numbers

According to the Treasury, in 2014, we will spend $248 billion on the four major tax expenditures for home owners:

The mortgage interest tax expenditure is the biggest at $101.47 billion. Capital gains tax exclusions come in second at $75.5 billion. Imputed rent exclusions cost $45.9 billion. Property tax deductions cost $25.2 billion. For comparison purposes, the SNAP program in 2013 cost just $80 billion, and provided income assistance to 47 million poor people.

Who do these tax expenditures go to? According to the CBO, almost all of them go to the rich:

Around 73 percent of the mortgage interest tax expenditures flow to the richest fifth of families. Around 18 percent flow to the next richest fifth of families. Negligible amounts flow to everyone else, with the poorest fifth getting approximately none of them. The CBO tax expenditure report does not estimate the distribution of the other three main home owner tax expenditures. But they should all be at least as lopsided as the mortgage interest tax deduction, and are very likely more lopsided for a number of reasons I won't go into here.

If we take the low estimate of the distribution of these tax expenditures provided by the mortgage interest tax deduction figures, we find that the richest fifth of families will receive $181 billion in home owning subsidies this year. That is 2.25x more money than food stamp recipients received last year.

A Better Way

Needless to say, this is a pretty ridiculous way to spend $248 billion to help people afford housing. If one were cynical about these things, one might even think that this is nothing but a giveaway to rich people.

There are a long list of better ways to spend $248 billion on housing assistance. One better way would be to give it out universally so that everyone received the same amount of housing assistance. With a current population around 318 million, that would mean a housing assistance check of $780 per person. Thus for a family of four, that would be equal to $3,120 in housing assistance each year. Home owners could spend this money on their mortgages and renters (which is what most low-income people are) could spend it on their apartments rents.

This won't ever happen, of course. Subsidies for rich families are untouchable for obvious political reasons, so much so that they aren't even on the political radar (meanwhile, food stamps, which is a much smaller program, seems to be suffering budget cuts and extreme scrutiny every few months). But we could do this if we wanted to. And it would be a huge improvement.