TF Weighs In: End the First-Time Homebuyer Credit
October 6, 2009
We posted the following in response to this Wall Street Journal blog post regarding the possible extension and expansion of the first-time homebuyer tax credit:
The first-time home buyer credit should absolutely not be extended. Owning a home is part of the American dream, but the government’s obsession with subsidizing homeownership seems more like a nightmare. Homeowners are already heavily subsidized at the expense of other taxpayers through tax provisions such as the mortgage interest deduction, the deduction for state and local property taxes, and the non-taxation of imputed rental income.
According to a 2005 study by the Congressional Budget Office, the effective tax rate on tenant-occupied housing is 18.2 percent, while the rate on owner-occupied housing is negative 5.1 percent, a difference of over 23 percentage points. Homeowners are showered with subsidies while renters (and other taxpayers) pick up the check.
This over subsidization of home ownership encourages too much investment in housing and too little investment in other sectors. It also encourages people to purchase homes who otherwise would not and probably should not. The housing bubble’s growth – helped along by government pressure to loosen lending standards on federally backed loans – and subsequent collapse should have opened our eyes to the dangers of too many unqualified buyers owning homes.
Those considering buying a home should make that decision based on what makes the most financial sense for them in the long-term, not how much the government is willing to pay them to buy a home right now.
For more on the home buyer credit see Tax Foundation chief economist Patrick Fleenor’s recent op-ed.