A landlord charges rent not based on his costs, but on what the market will bear. If he has to compete with rents which are LOWER than his costs, including interest payments, he will be forced to do so.

In fact, that is happening right now. Many people are renting out properties they can’t sell at a loss because if they don’t lower their asking rents, the place does not rent at all.

Most rental properties which have positive cash flow are not heavily financed, so this is a non-issue.

I’m not sure if you’re concerned about an impact on home ownership rates or home prices. Research indicates that if the interest tax deduction were eliminated, ownership rates would remain the same, but prices would go down, reflecting the decrease in buyers purchasing power. For example, ownership rates are about the same in countries without an interest tax deduction. Moreover, in this case, eliminating the credit for people with incomes over $200,000 would certainly have no impact on ownership rates. Do you think those people will choose to rent instead?

I think the purpose of the stimulus examples you point to (the tax credit, and efforts to keep interest rates low) are intended to prop up home prices in the short term. Perhaps, in the short term, they will also increase homeownership rates. In the long term, they won’t.

I have happened to notice that income tax rates are progressive. I think that’s fair, as someone with a higher income tends to utilize public resources more than someone with a lower income. Moreover, I think wide income disparities are unhealthy for society, so I’m good with an effort to offset that.

Finally, I would completely agree with your last paragraph. I would eliminate the mortgage deduction, and have everyone pay tax based on the value of their home. I think the current system is ridiculously unfair.

We can debate what economist believe or don’t believe all day. If the interest rate deduction has no bearing on home ownership, then tell me why the current administration is throwing all kinds of money at homebuyer tax credits and buying Treasury bonds to keep interest rates low. An interest rate deduction for tax purposes is a stimulus to promote home ownership. Just like the recent cash for clunkers and a sale at MACY’S, when its put on sale, reduced, incentified, combines with additional value, spending goes up. You ask if your neighbor whose house is worth 10 times more than yours receive 10 times the incentive. Have you noticed income tax rates lately, and how the more you make the more you pay?

What would you prefer to do, maybe we eliminate the mortgage deduction, but at the same time let’s have some fairness in the California Property taxes and have everyone pay based upon the value of their home, and not based upon when it was purchased. There is your fairness and equalization.

I’m sure your economists will agree on the elasticity of demand.

Suppose since you rent instead of own, your landlord loses the interest deduction and raises your rent $700. I’m sure your okay with that, right?

“Economists don’t agree on much, but they do agree on this: the interest deduction doesn’t do a thing for homeownership rates.”

http://www.nytimes.com/2006/03/05/magazine/305deduction.1.html?_r=1&pagewanted=print

Moreover, you are lobbying to keep in place a regressive tax credit. Why should my neighbor, whose house is worth 10 times mine, receive 10 times the incentive to be a homeowner? Do you think we should, in kind, give child tax credits that scale with income?

Also, the benefits of home ownership are felt even more so by people who are not borrowing other people’s money to buy their homes. If you have a bigger down payment, you pay less per month in interest than you would otherwise, so moves to increase downpayments will also improve stability of neighborhoods, by that logic.

Removing the interest rate deduction is a fair thing to do – we don’t get interest rate deductions on credit cards, or when we pay for stock in companies with borrowed money. Both are good for the economy, so there’s no reason to single out the borrowing of money to pay for homes.