Sheila Bair, chairman of the Federal Deposit Insurance Corp., stirred the real estate pot on Monday, calling for a rethinking — if not an end — to government incentives for homeownership. Here’s a slice of the prepared remarks before the Housing Association of Non-Profit Developers annual meeting in Tysons Corner, Va. …
For 25 years federal policy has been primarily focused on promoting homeownership and promoting the availability of credit to home buyers. While tax deductions for interest on most forms of consumer debt have been curtailed, the home mortgage interest deduction lives on. Local property taxes are also deductible, as are capital gains up to $250,000.
The government-sponsored mortgage enterprises, which flourished during most of the last 25 years, have required large federal subsidies to cover their losses in the crisis — formalizing the implicit guarantee that has long contributed to their success. Meanwhile, the supply of credit to riskier borrowers also expanded during this period — not as a result of CRA (Community Reinvestment Act), as I have explained, but as a result of private securitization practices that turned out to be seriously flawed.
In the end, these public and private efforts helped to briefly push the homeownership rate as high as 69 percent. That’s a level that ultimately proved unsustainable, and that may not be reached again for many years, if ever.
Even as we emerge from this crisis, it is worth asking whether federal policy is devoting sufficient emphasis to the expansion of quality, affordable rental housing. It is estimated that when you add up the mortgage interest deduction, local property tax deductions, and exclusions on capital gains realized on the sale of owner-occupied housing … the taxpayer subsidies for homeowners are about three times the size of all rental subsidies and tax incentives combined.
In fact, you can argue that this huge subsidy for homeowners has helped push up housing prices over time, making affordability that much more of a problem for the very groups you’re trying to serve. I think we need a better balance. Sustainable homeownership is a worthy national goal. But it should not be pursued to excess when there are other, equally worthy solutions that help meet the needs of people for whom homeownership may NOT be the right answer.