Is the mortgage interest deduction a good idea?

 I usually don’t like arguments like the one that follows, as purely short-run second best considerations tend to rub me the wrong way.  Nonetheless I had never thought of it before, so I am happy to present it for our collective enlightenment: Mortgage interest deductions and other homeownership subsidies are widely believed to be harmful
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I usually don’t like arguments like the one that follows, as purely short-run second best considerations tend to rub me the wrong way.  Nonetheless I had never thought of it before, so I am happy to present it for our collective enlightenment:

Mortgage interest deductions and other homeownership subsidies are widely believed to be harmful because they redistribute resources from lower-income renters to higher-income homeowners. We argue that renters actually benefit from these policies in general equilibrium for two reasons. First, the rental supply curve is relatively inelastic, which means that rents fall when these policies reduce rental demand. Second, many renters spend most of their income on housing, and these renters gain substantially from rent decreases. We calibrate a quantitative model to match empirical evidence on these factors and show they are strong enough that subsidizing homeownership actually increases welfare.

That is from a newly published article by Shahar Rotberg and Joseph B. Steinberg.  Via the excellent Kevin Lewis.

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 Economics, Uncategorized