Eliminating Government Housing Subsidies Will Improve the Economy

Eliminate the myriad of government subsidies will cause house prices to drop, but it will also release capital to more productive uses.

If you would like to learn how you can get involved with trustee sales, please contact me at sales@idealhomebrokers.com.

Irvine Home Address … 21 EDEN Irvine, CA 92620

Resale Home Price …… $659,900

Two of us riding nowhere

Spending someones

Hard earned pay

You and me Sunday driving

Not arriving on our way back home

we're on our way home

we're on our way home

we're going home

Boney M. — Two of Us

Government subsidies are spending someone else's hard earned pay. All of us who work are paying for McMansions everywhere through the home-mortgage interest deduction that subsidizes the McMansion owner's loan. It's time we stopped these subsidies, allowed housing prices to fall to their natural market levels, and released trapped capital currently tied up in real estate to more productive uses.

We Can't Afford This House

Christopher Papagianis and Reihan Salam — July 20, 2010

Part 2 —

Admittedly, ending the subsidies would probably depress housing prices overall. Since most homebuyers base their purchase decisions on the monthly after-tax cost of housing, reducing the deduction for mortgage interest would mean that the same monthly payment would buy “less house.” For example, a 25 percent deduction for mortgage interest allows buyers with a 6 percent mortgage to spend an extra $30,000 on a house without seeing any increase in their monthly payments.

There is a much easier way to figure out how much eliminating the home-mortgage interest deduction would cause prices to drop. What is the marginal tax rate of the borrower? Assume that most buyers borrow the most they can afford on a monthly payment basis, and further assume intelligent ones have already factored in the tax savings. If you eliminate the tax savings, people will need to bring their payment down accordingly. This won't have much effect on the lower priced homes because many of those borrowers don't itemize, but in cities like Irvine, elimination of this deduction would cause loan balances to shrink by 25% to 40% to keep the same payment. Since about 80% of the house price is usually financed, this will lower prices 20% or more.

Similarly, an increase in down-payment requirements from the current 3.5 percent to 20 percent would mean that $20,000 of savings could be used to buy only a $100,000 house, rather than one priced at $570,000.

Increasing the down payment requirement won't directly impact prices, but it will have a major indirect effect. For instance, trustee sale prices are 15% to 20% lower than resale prices because the down payment requirement is 100%. Very few people have the entire purchase price in cash, so the limited buyer pool makes prices much lower. The same principal holds when evaluating what would happen if down payment requirements went from 3.5% to 20%: they buyer pool would get so much smaller that bids would be lower and prices would go down, probably quite a bit. The people who can put 20% down can still borrow plenty at low interest rates, but there are fewer of these people, so the law of supply and demand suggests that prices would go down.

A general decline in housing prices would constitute a one-time wealth transfer from current homeowners to future ones — but this would be well worth it if phased in over a period of years.

That isn't really true. A general decline in housing prices would constitute the evaporation of the illusory wealth that current home owners believe they have but really don't. The housing bust didn't witness a transfer of wealth, and further price declines necessary to get off the government stimulus won't either.

In 2007 (the last year of the bubble), households’ primary residences accounted for only 31.8 percent of total family assets. While primary residences make up a larger share of the assets of lower-income than of higher-income households, housing subsidies are less significant for the former because their tax rates are lower, which makes the value of deductions smaller. Because the value of subsidies provided by the FHA and the GSEs accrues to the borrower on a per-dollar-of-debt basis, their reduction is unlikely to be felt as strongly by lower-income households. The well-off take out bigger mortgages, pay more interest, and have bigger income-tax bills against which to apply a deduction: The median house value for households in the 40th through the 59th income percentiles is just $150,000, compared with $500,000 for households in the top income decile.

According to the Office of Management and Budget (OMB), the mortgage-interest deduction is expected to cost $637 billion over the five years ending in 2015. The exclusion of capital gains on primary residences is expected to cost another $215 billion over the same five years, with the deductibility of state and local property taxes on owner-occupied homes adding $151 billion. In total, these subsidies will reduce federal revenue by well over $1 trillion over a decade during which the federal government is expected to run a $9 trillion deficit. A gradual phase-out of these subsidies is therefore not only smart economics, but a fiscal necessity.

The financial argument is difficult to ignore. We spend a great deal of money inflating house prices in places like Irvine, and we obtain no observable benefits from the investment — unless you consider Irvine Ponzis something you want to see more of.

Over the years, tax experts have also zeroed in on how some of these subsidies are distributed. Under the status quo, 80 percent of the benefits from the mortgage-interest deduction go to the top 20 percent of households in terms of income. The deduction helps only those taxpayers who itemize deductions on their tax returns, which is much more common among high earners, and the value of the subsidy rises as one moves up the tax brackets. Further, as Joseph Gyourko and Todd Sinai of the University of Pennsylvania have documented, the subsidies are unevenly concentrated, with net benefits going to only 20 percent of states and 10 percent of metropolitan areas. Not surprisingly, over 75 percent of these benefits go to three high-cost metropolitan areas: New York City–Northern New Jersey, Los Angeles–Riverside–Orange County, and San Francisco–Oakland–San Jose.

A better approach would be to provide a flat tax credit to all homebuyers. This would preserve an incentive for people to buy a home but would not provide a larger incentive for people who buy bigger homes or take on outsized debts. The size of the credit could be reduced over time. Under this sort of policy, the federal government could aid middle- and working-class homebuyers at a small fraction of the cost of the current mortgage-interest deduction.

There is a better and more politically feasible alternative that changing the home-mortgage interest deduction to a flat tax. Rather than changing anything about the deduction, it could be rendered worthless by simply raising the standard deduction.

Whenever we estimate the tax benefits for an Ideal Home Brokers client, we take their estimated marginal tax rate at tax 10% off it. Anecdotally, a those that have run simulations through their tax software report that the cost of losing the standard deduction makes the home-mortgage interest deduction significantly less effective that most assume it is. Someone in the 35% tax bracket only gets about a 25% net tax advantage.

Consider what would happen if the standard deduction were raised to $50,000. The lower-middle class would receive a substantial tax break, and the upper-middle class would see a greatly reduced benefit from itemizing. In fact, this would simplify tax preparation significantly because very few people would bother to itemize. The net effect would be to shift the tax burden from low wage earners to high wage earners, and in the process, it would render the home-mortgage interest deduction worthless.

Raising the standard deduction would be much easier politically than trying to mess with the tax code to eliminate the home-mortgage interest deduction. Most people wouldn't even recognize how their deduction became worthless, and politicians wouldn't be blamed.

Dismantling the GSEs is a more difficult proposition. Taxpayers have already committed roughly $150 billion to the bailout of Fannie and Freddie. The Congressional Budget Office projects that losses could balloon to $400 billion over time, while other analysts suggest the taxpayer hit could be closer to $1 trillion if default and foreclosure rates stay high. The reason these estimates vary so much is that taxpayers can expect three different kinds of losses from the GSEs:

  1. those linked to the $5 trillion of mortgage-backed securities and loan guarantees that they are responsible for;
  2. those that will continue to occur as a result of regular, ongoing operations in a declining housing market; and
  3. those that may result from their being used as de facto government agencies, subsidizing foreclosure-prevention efforts.

Fannie and Freddie function today as off-balance-sheet conduits for taxpayer spending on housing, and there is no mechanism in place to end this practice. What’s particularly disappointing is that Congress is on the verge of sending the president a sweeping financial-reform bill that doesn’t account for Fannie and Freddie, the most expensive part of the bailouts.

There is no chance of anything being done with the GSEs until the housing bust is over, and we are less than 50% of the way there. The various government props has done nothing but delay the inevitable and promote a great deal of market denial. People cannot afford their homes, and these homes — along with the loans that purchased them — must be liquidated. The liquidation process will cause staggering losses, and the GSEs are the only conduit banks have for dumping these losses on the US taxpayer. That is the only reason Congress did not address them in the financial reform package.

A lot of thoughtful proposals for reforming Fannie and Freddie have been issued over the past year. In late May, Donald Marron and Phillip Swagel of Georgetown University put forth one of the more balanced and straightforward plans. The crux of it is to make the GSE guarantees explicit rather than implicit, and to charge an appropriate fee for them. Marron-Swagel would turn Fannie and Freddie into private companies and force them to compete with other firms. These new businesses would have a narrow mission: to buy conforming mortgages and bundle them into securities that are eligible for government backing. The key is that the federal guarantee would be transparent, and offered only in exchange for the firms’ paying the government an actuarially fair price for what would amount to insurance.

This sounds like the kind of idea an academic would come up with. There is no way the government would ever charge a fair-market actuarial price for this insurance. We all know it would be subsidized at pennies of its value, and the government would be on the hook for the next massive bailout once lenders know all the risk has been shifted to them. This idea will not work.

An explicit government backstop might seem an unwarranted interference in housing markets, but recent experience suggests that it is unrealistic to believe that the government will stand aside next time.

To even suggest the GSEs have anything other than an explicit government guarantee is a joke. We tried the implicit guarantee nonsense for about 40 years, and everyone knew the government was going to step in when times got tough. Now that it actually happened, everyone in the market knows the guarantee is explicit. For anyone in the government to even suggest otherwise is a lie more transparent than most lies they tell us.

Some government backstop will always be implicit; better to make it explicit and price it. Once a price is established under the Marron-Swagel plan, the government would have the option of raising it, thereby reducing its support for the market, slowly and over time. The government could also reduce its footprint in the housing market by putting a ceiling on the size of the mortgages eligible to be packaged into government-backed securities. If the loan limit were capped in nominal terms, then future inflation and house-price increases would, over the course of several years, work to reduce the government’s presence in the marketplace.

If you really want to lower the government's footprint, lower the conforming limit. Change the formulas. Why do we allow jumbo conforming? Why not cap all GSE and FHA loans at $417,000, and make everything else private-label jumbo loans? If you lowered the conforming limit, over time only low-income borrowers would utilize these loans. And that is why these programs were begun. We lost our way and began subsidizing mortgages of high wage earners and inflated house prices everywhere they congregate.

Likewise, other subsidies, such as the mortgage-interest deduction, can and should be gradually eliminated.

Reforming the housing sector won’t miraculously restore robust economic growth. It will, however, help stanch the bleeding of productive resources into a sector that has been distorted for decades by misguided government subsidies. And over time, that will give workers and entrepreneurs the tools they need to build a stronger and more sustainable economy.

We spend way too much money on housing in the country, and we get little in return for that investment. Think about it. What does a house produce after it is built?

When we invest in factories, the completed factory produces goods and services and employs people. When we invest in infrastructure, the new transportation system increases commerce and stimulates the economy. When we invest in housing, we get a temporary boost from the construction itself, but the house does nothing but require additional resources for upkeep. It produces nothing.

So why are we subsidizing housing?

In California we subsidize housing because our entire economy is a Ponzi Scheme dependent upon rising home values. Rising prices generates local tax revenues that keeps governments afloat, and more important than that, it provides HELOC money to all homeowners who spend this in the local economy. Without this HELOC spending, the California economy sputters, governments teeter on the brink of bankruptcy, and Ponzis everywhere suffer the loss of their borrowed existence. I don't see things changing any time soon because we lack the understanding or the will. California seems to like its Ponzi economy. Someday it will blow up. It may already have.

Poor timing

The owners of today's featured property did not time their purchase particularly well. Like many in the first wave of knife catchers, they likely saw the first decline in prices as a buying opportunity — an opportunity to lose their down payment and destroy their good credit.

  • This property was purchased on 4/3/2007, coincidentally it was the day of the collapse of New Century Financial and the implosion of subprime. They paid $750,000 using a $600,000 first mortgage, a $75,000 second mortgage, and a $75,000 down payment.
  • They were too late for any mortgage equity withdrawal, but they have been allowed to squat for a year.

Foreclosure Record

Recording Date: 06/18/2010

Document Type: Notice of Sale

Foreclosure Record

Recording Date: 10/16/2009

Document Type: Notice of Default

It was trying to save buyers like these that prompted me to begin writing for the Irvine Housing Blog in early 2007. These people were likely in escrow when I first began writing in late February of that year. I doubt anyone involved in the transaction told them this would be their fate.

Irvine Home Address … 21 EDEN Irvine, CA 92620

Resale Home Price … $659,900

Home Purchase Price … $750,000

Home Purchase Date …. 4/3/2007

Net Gain (Loss) ………. $(129,694)

Percent Change ………. -17.3%

Annual Appreciation … -3.6%

Cost of Ownership


$659,900 ………. Asking Price

$131,980 ………. 20% Down Conventional

4.62% …………… Mortgage Interest Rate

$527,920 ………. 30-Year Mortgage

$130,789 ………. Income Requirement

$2,713 ………. Monthly Mortgage Payment

$572 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$55 ………. Homeowners Insurance

$170 ………. Homeowners Association Fees


$3,510 ………. Monthly Cash Outlays

-$456 ………. Tax Savings (% of Interest and Property Tax)

-$680 ………. Equity Hidden in Payment

$229 ………. Lost Income to Down Payment (net of taxes)

$82 ………. Maintenance and Replacement Reserves


$2,685 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$6,599 ………. Furnishing and Move In @1%

$6,599 ………. Closing Costs @1%

$5,279 ………… Interest Points @1% of Loan

$131,980 ………. Down Payment


$150,457 ………. Total Cash Costs

$41,100 ………… Emergency Cash Reserves


$191,557 ………. Total Savings Needed

Property Details for 21 EDEN Irvine, CA 92620


Beds: 3

Baths: 2 full 1 part baths

Home size: 1,915 sq ft

($345 / sq ft)

Lot Size: 4,050 sq ft

Year Built: 1980

Days on Market: 37

Listing Updated: 40362

MLS Number: S621337

Property Type: Single Family, Residential

Community: Northwood

Tract: Ps


According to the listing agent, this listing may be a pre-foreclosure or short sale.

This property is in backup or contingent offer status.

Popular Floorplan with 3 Bedrooms, 2.5 Baths. Updated Kitchen and Updated Throughout Located on Cul de Sac Street & Backs to Greenbelt. Newer Tile Roof, Block Walls, Long Driveway. Walk to Award Winning Schools(Santiago Hills Elementary, Sierra Vista Middle School & Northwood High School), Close to Association Pool. Low Taxes, No Mello Roos, Association Dues $81/Mo. SMALL DOG WILL BE IN CAGE.

79 thoughts on “Eliminating Government Housing Subsidies Will Improve the Economy

  1. StockInvestor

    IrvineRenter: “Consider what would happen if the standard deduction were raised to $50,000.”

    Default on US Treasury securities and Social Security/Medicare obligations. IMHO, it is that bad.

    1. IrvineRenter

      If such a change were done all at once, it would cause a dramatic loss in government revenues and ensuing chaos, but if phased in over time, we would adjust.

      1. Keru

        By “adjust” would this mean adjusting to lower quality government services or less government services offered?

        I dunno about being phased in over time being a lesser impact overall. Its not a good analogy but I might compare it to emptying a bucket of water either by tipping it over or poking a hole in the bottom. Poking a hole in the bucket would retain water in the bucket for a longer period of time but in the end both methods would result in an empty bucket. So while this is a poor example as there are other sources of revenue for the government you can probably understand what I’m getting at.

      2. Stock Investor

        As of today, government revenues are already 25% lower than necessary. “$50K standard deduction” will reduce revenues by another 35% (rough estimate). At these levels of deficit, system failure is imminent.

  2. JK

    While I’ve read people talking about eliminating the mortgage deduction is there even talk about this in Washington?
    It seems to me that it is too much of a “sacred cow” and neither the dems or republicans would want to touch that.
    With our govt trying to prop up the housing market so much I don’t see this really happening anytime soon.

    1. AZDavidPhx

      It will never be eliminated unless the balance of house debtors to renters tips to the renter side. House debtors and house owners comprise something like 64% of the population right now so they have the numbers.

      Try running for office on a platform that promises to annoy 64% of the population and watch what happens.

      1. winstongator

        Nowhere near 64% of people benefit from the HMID. Only 35% itemize, so even if all of them benefit from HMID, it’s only about a third. However, nearly all high earners itemize, and their relative influence outweighs the below-median earners.

        Any change to HMID would go with a change in treatment of interest expenses. It would be a major change to the tax code, and one that would decrease leverage overall in the financial system.

      2. Long Beach Renter

        The important question is what percentage of *voters* (not the overall population) claim the HMID. My guess is that homeowners are more likely to be politically active.

  3. Laura Louzader

    Even the Left and the ‘progressives’ are beginning to recognize that government subsidies and management of the housing market has enabled bad lending, driven housing prices beyond affordability, generated inappropriate and redundant development, blighted our cities, and has also caused more homelessness while making our cities unaffordable for low-wage workers.

    I have always maintained that without the HUD, the FHA, the government-sponsored mortgage agencies like Freddie and Fannie and Ginnie, the mortgage interest deduction, low-income housing projects and the Section 8 Welfare Program for Slumlords, that we would all be better and much more cheaply housed at all socio-economic levels, and our capital would be deployed in productive industries that provide the things we need (power plants, railroads, more elegant energy production technologies) while utilizing a larger array of skill sets and talents. Perhaps brilliant scientists and engineers in demanding specialties would not be languishing on the unemployment rolls or working at jobs that do not utilize their skills, while we line the back pockets of hucksters and financial scammers.

    80 years of housing subsidies and government involvement in manipulating the housing market have given us uncontrollable sprawl, destroyed our older cities, and made housing extremely expensive while creating a larger homeless population than ever.

    1. AZDavidPhx

      So anyway – did you watch the special episode of The Bachelorette last night? It was SOOOOO amazing. I hope she picks the quiet mysterious one! That player guy is no good for her I tell you!

      1. Alan

        Damn, I missed it! I was too busy reading about Bristol and Levi maybe getting their own Reality show. 😉

  4. scottinnj

    I’m gld that the governor of NJ gets it and has vetoed the NJ Used Home Salesman Income Preservation Act.

    Govenor Christie vetoes $15k home tax credit

    “The homebuyer’s tax credit program would have reinvigorated the building industry and provided a much-needed boost to the state’s slumping economy,” Sen. Paul Sarlo (D-Bergen) said in a statement. “This action the governor took today will only exacerbate our economic problems. It is beyond disappointing.”

    But Christie argued in his veto the money would have been used by people already committed to buying homes and would “briefly and artificially inflate home values.”

    1. AZDavidPhx

      I love how states are getting involved with these house money give-aways now. It’s like one big circle jerk.

  5. Soylent Green Is People

    The Mortgage Interest Deduction is another third rail issue that ain’t gonna go away. Neither are higher than $417k loans. No sense fighting this. You and Sancho Panza are tilting at windmills.

    The easiest way to achieve what you are seeking – responsible home ownership – is this: Lower debt to income ratios to a 35% maximum. Anything higher than 35% and the loan will not be purchased by FN/FR/HUD. I’m not talking about 35% housing over 55% total debt. I mean 35% period, the end.

    This change does several things:

    1) Keeps the MID which is an incentive to purchase.

    2) Enforces responsible borrowing.

    3) Enforces responsible lending.

    4) Will push prices down because if there isn’t a loan product suitable to fund a deal, sellers will have no choice but to lower their price.

    5) Retains higher loan balances but also keeps lending at sane and acceptable risk levels.

    The second piece of the puzzle is to restrict FDIC insurance to TBTF banks that lend over 35% debt to income. You want to fill the market for these kinds of loans? Find a hedge fund willing to take the risk. They fail, too bad. It’s “The Market” at work. They win by filling the gap.. Good for them. At least we are not at risk.

    Simple, easy to market to the public, merely a few changes in the rules.

    My .02c

    Soylent Green Is People.

    PS – Tuesday is Soylent Green Day!

    1. IrvineRenter

      I like your idea. I have proposed similar limits on loan DTIs in the past. I imagine that the lending industry would fight any such restrictions to the bitter end. Right now they enjoy the ability to commit people to lifelong debt servitude with no limits on DTIs, and they also know the government will pick up the tab for bad loans. Plus, with bankruptcy reform in 2005, it is more difficult for borrowers to get out from under these crushing debt loads. All profit and no risk is a sweetheart deal their lobby won’t easily give up.

      1. winstongator

        There are good ideas out there, but somehow they aren’t getting talked about much.

      2. es

        Second Verse: same as the first…

        I’m asking this for the 4th time now, with still no satisfactory answer.

        How do you think the American populace will react to such rules being put in place??

        How quickly would the tea- partiers be out front of congress talking about how “the commies are taking their liberty and freedom?”

        1. matt138

          This isnt a right left issue in the country anymore. We all must come together against an overbearing, overburdensome government that is choking our economy by subsidizing every failed business. It is not the job of government to subsidize. It only can create inefficiencies.

          Let the market work. Govt subsidization and resulting regulation are always a disaster.

  6. HydroCabron

    I think you underestimate the difficulty of ending any tax deduction/credit or entitlement in this country.

    I think the end of the mortgage interest tax deduction is only slightly more likely than the declaration of Pedophile Awareness Week or National Flag-and-Bible Burning Day. Not gonna happen.

    The problem is that, even if a measure is revenue-neutral to each individual taxpayer, when a tax credit is eliminated it opens the door to demagogues who can sow enough confusion and conspiracy rumors to scare the bejeezus out of a significant and highly-motivated subset of the voters, propelling the voters to the polls and the demagogues into office.

    Remember those folks who were terrified that medicare would become a government program? Consider also how many people don’t understand the difference between marginal and overall tax rates, and believe that earning $2,000 more per year will decrease their take-home, and you’ll understand where I’m coming from.

    Am I cynical?

    1. winstongator

      Here’s a plan: cap the limit that can be deducted, which I think is already in place. Then lower the cap or not raise it as inflation eats away. It’s something that could be phased in and have much more limited impact.

      I think a similar strategy with the GSE’s would be good until the point where they can only buy mortgages below a median price. I see very little comment on how the GSE loan limit doubled from 1996 – 2006. Was there any justification for that?

      The rigidity of the tax code is why I think modulating the deficit through spending is a better way. It’s easier to pull back highway spending than to take away someone’s ‘temporary’ tax cut.

  7. Planet Reality

    This is a fantastic platform let’s end the housing subsidies.

    Let’s start off by forming an investment pool to invest in the government subsidized trustee sale market.

      1. Planet Reality

        The first sentence I would have tagged niave.

        The second sentence I would have tagged with hypocrisy.

        There is nothing wrong with seeking to join the corrupt aristocracy, just please end the hypocrisy.

        1. Joseph

          I have to agree with PlanetReality on this one. Sometimes this blog speaks out of two sides of its mouth (whether naively or hypocritically).

          Also, I’m not surprised that those currently renting love the idea of eliminating the mortgage interest deduction, but how many of you current homeowners (particularly those who’ve recently bought a home) are so keen on it? Not many, likely.

          1. alan

            That would be me. I’m a homeowner and it doesn’t make that much sense to me. If not elimiated, I would like to see it capped at something reasonable, say $250,000. If you can afford a house over $250K you can afford to pay a little more tax. Not that I’m that anxious to give money to the government.

            Of course, I also have problems with prop 13. The rate of increase in property value should have been tied to inflation, not 2%. E.G. if infaltion is 4% then your cost to run your local school increases 4% per year but your main funding source, local property tax only goes up 2% then you fall behind.

        2. IrvineRenter

          Planet Reality,

          I really don’t know why you bother some days. Occasionally, your comments are insightful, and although I disagree with almost everything you say, a contrarian view has value. However, today, you simply spouted nonsense which adds no value at all.

          First, your sarcastic statement about ending subsidies adds nothing to the conversation. In case you failed to read the large number of thoughtful comments above yours, there are legitimate concerns among people who see their taxpayer dollars being wasted. A discussion of how these subsidies work and whether or not we receive benefit from these subsidies is important to some people. If you don’t like the discussion we are having on this issue, feel free to avoid participating.

          Second, your other comment is simply vacuous: “Let’s start off by forming an investment pool to invest in the government subsidized trustee sale market.” I don’t even know what the hell you are talking about. The trustee sale market is not government subsidized. In fact, the all-cash market is the last bastion of free-market economics we have. If it weren’t for the government subsidies in the resale market, the all-cash prices would be even lower, and the overall market would be less distorted.

          How exactly am I being a hypocrite by finding value in arbitrage transactions? Short-term property flips can adjust to falling prices by simply lowering bids. Arbitrage cares not about the direction of prices only their short-term predictability.

          I am not seeking to join any corrupt aristocracy. Again, I don’t have any idea what you are talking about. There is an obvious demand for capital at trustee auctions, and I am seeking to meet that demand. Nobody is asking you to participate, assuming you even qualified.

          If you have something to contribute to the conversation, please do. If you merely want to come here to cast aspersions, please keep them to yourself. I am completely comfortable with what I am doing.

          1. Planet Reality

            Its down right hilarious that you don’t see the connection and fail to understand that the arbitrage exist due to the subsidies on both the supply and demand side. Then again you are always a day late and a dollar short. Drink cards LOL.

          2. Schadendude

            PR, you’re quite literally the biggest cyber-jerk I’ve ever had the displeasure of listening to. You’re a braggart and a fool. Nobody takes you seriously around here. I can only hope that in your personal life, that you conduct yourself with greater humility and character, though I doubt it.

            Do us all a favor and zip it.

          3. IrvineRenter

            No name calling please. The characterizations are unnecessary as the comments speak for themselves.

          4. AZDavidPhx

            Wow, where are all those folks who came out talking about how polite PR always is like the last time he started chasing IrvineRenter around the locker room with the wet towel?

            I do agree with him that the trustee market is being subsidized by the government though. There may be bottom feeders paying all cash, but they are flipping them to noncash buyers which is where the subsidizing comes in. If the government withdrew all support from the housing market, how many of these trustee flippers would be caught with their pants down?

          5. Swiller

            I like PR, he has the fortitude to stand up to the many for that which he BELIEVES to be right. It may not be right, but his belief is no different than the rest of yours….just because you BELIEVE it, does not make it a truth.

            Just ask the millions of americans that deny other americans their God given right to use cannabis.

          6. Swiller

            I like PR, and there sure seems to be more than one jerk on this site…especially the ones who try and control others through intimidation, name calling, and general attacks.

            I like having the contrasts of opinion. I disagree with most of the capitalists and republicans/democrats that post here, but I still enjoy the contrast of opinions…especially when they contrast my own opinion. I would hate having a large pool of everyone patting each other on the back. How boring.

          7. AZDavidPhx

            Swiller – what is with all the Al Qaeda talk today. You aren’t going to dress up as a bong and blow yourself up on the steps of the Capitol building are you.

          8. Planet Reality

            I usually state the obvious, some people don’t like that. I know there have been a myriad of chuckles on this blog lately.. Reading about drink cards to invest in trustee sales while simultaneously reading about ending government subsidies.

            Most people, including David agree with me. I am usually polite and definitely take more crap from people here including IR than I ever dish out. Responding to personal attacks that I receive would bring me to their level.

          9. Schadendude

            It’s not your opinions I find objectionable, it’s your manner. Apologies for calling you a jerk. IR is correct that your comments speak volumes about you.

          10. Planet Reality

            Dude you need to re-examine what you subscribed to with this blog.

            It exposes personal details of maleinvestment. Personal manner???? dude look in the mirror, and re-evaluate the premise of this blog, the hypocrisy never ends.

          11. YoY

            You sure seem to have a bone to pick with IR and the blog. I’ve been reading IHB for a few years now and I’ve learned quite a few things. And although I might not agree with everything that is stated here, I still believe IHB provides value. But it seems like you just hate IHB and IR. I don’t think I’ve read anything positive from you in regards to IR. If you feel such animosity then why do you continue to visit and post so often?

          12. Swiller

            Ha ha, no, I’m far too selfish to do anything foolish like that and there’s too many extremists out there already. I just want to find the moderates.

            Are there any moderates left? …./cricket

  8. Perspective

    I agree with the referenced article and IR’s comments regarding the mortgage interest deduction. However, the requirement that any change be phased in is paramount. I greatly benefit from this deduction, and it was a huge part of my decision to purchase. It’s the only thing keeping my costs close to rental parity. Walking would be a very attractive option for me and many other Irvine home-debtors should a change like this happen abruptly.

    That’s why I’d support the change if phased-in over 30 years or so.


    In 2011, 29/30 of mortgage interest may be deducted;

    In 2012, 28/30 of mortgage interest may be deducted;

    And so on…

    So if you purchased a home in Irvine in 2015, you would be able to deduct 25/30 (83.33%) of the mortgage interest you paid in that year.

    Prices would slowly decline with the buyers’ expectations that the value of the mortgage interest deduction was declining, but it wouldn’t adversly affect purchasers in the past decade as much as an abupt change would.

    1. Perspective

      And I don’t like talking about tax code provisions in isolation. If we’re going to make major changes, then let’s simplify the entire code.

      There should be a simplified progressive rate stucture, at rates lower than current rates (or the pre-Bush Tax Cut rates), with very few deductions, if any.

      I understand that renters don’t want to subsidize my house, but I don’t want to subsidize your decision to have children. I don’t want to subsidize your decision to contribute 10% of your income to your religion.


      1. alan

        “I don’t want to subsidize your decision to have children”

        Sorry, I have to slam you here..

        First of all, schools are supposed to be primarly funded by property taxes. The owners of apartments pay property taxes and pass these on to the renters so renters aren’t getting off scott free.

        Health care.. I’ll bet nearly every Irvine renter works and has health insurance.

        It’s not the renters you are subsidizing … it’s the ones not working on section 8 and public assistance

        1. Perspective

          I chose my words poorly. By “your” I didn’t mean to refer to renters; I meant to refer to parents (home-debtors, renters, etc.). And by “subsidize your decision to have children,” I was thinking about the additional deductions for children including the child tax credit.

          How we pay for public education and how much we spend is hugely important, but not part of a tax code revision discussion.

          1. Long Beach Renter

            Fair enough. I’d point out that there are some differences between subsidizing other people’s kids and subsidizing other people’s homes, though. We’re all counting on other people’s kids to grow up and keep the economy going so that we can enjoy retirement on our savings. A falling birthrate, or too many kids raised in poverty or without good educations, would eventually become everybody’s problem in that respect.

            I can’t think of comparable ways that other people’s homes really benefit non-home-owners. Maybe a little in terms of neighborhood stability, the economic stimulus of homebuilding, etc.—but I don’t think it adds up to that much.

          2. AZDavidPhx

            LBR –

            You miss the point entirely. It’s a giveaway from non-house debtors to house debtors. Manipulation to encourage the sheeple to go to their nearest bank and sign up for a long expensive mortgage.

            All that stuff about stable communities, job building, etc is good old fashioned Marketing.

            The banks enjoy having us run around working away to pay them interest on money that they create out of thin air. Why should they give up such an awesome arrangement?

          3. matt138

            with all this publicly funded education, we will have plenty of new voters willing to let government “stimulate the economy” to keep it going with interest rate manipulation and government job creation.

            “Good education” is a relative term

  9. PhayenK

    Regarding your comment of why we subsidize housing in the US. I believe there were studies done by the government (or by realtors or someone) that stated homeowners provide stability to communities. The government was willing to subsidize housing in order for people to feel concerned for and to take care of their neighborhoods. Thereby reducing crime rates and increasing the overall appeal of neighborhoods/cities with little investment from the state/city governments.

    This is a side tangent, but it is also why the tax tables favor married couples. Married couples tended to be more stable than not, less moving, less crime, etc..

    1. scottinnj

      Technically I think the tax code encourages single income married households with children. When my wife and I got married as a two-income couple our tax bill was much higher than as two single tax payers. Though when she stayed home to raise the kids it was true that my income was taxed at a much lower rate as married filing jointly than single (even before taking into consider the allowance for my children). Our parentless unmarried friends however are poorer as a result of being married rather than co-habitating.

      1. to scottinnj

        Did you mean to say “Our parentless unmarried friends however are poorer as a result of being co-habitating rather than married” ????

        1. scottinnj

          Ack hate afternoon brain freeze – Meant to say Our parentless MARRIED friends are poorer as a result of being married rather than co-habitating.

        2. QueenCityEddie

          I think it was meant to say “Our childless unmarried friends however are poorer as a result of being married rather than co-habitating.” If not, sorry to hear about their parents. Anyway, I think the tax code should marginally encourage single income married households with children. I don’t want it to be such a huge distortion that people feel an urgent need to get married and have children if they would rather not.

          1. Swiller

            There is no point to getting married outside of having children.

            If business were run like marriages, we would be broke. Marriage is *the* worst financial contract you will *ever* sign in your life.

          2. lowrydr310


            When things go south and you hit bumps in the road, always remember that there’s usually nothing that a bunch of overpriced material goods won’t fix.

  10. Augurs

    IMHO, Good purpose and most American knew the problems we are facing two years ago.

    When the time we elected Obama, given Obama’s background and speech him given, Historians, in the future, will conclude that American is looking for a “revolution”, that’s why Obama can won election

    What a pity, Obama is a politician, a lawyer and talking is cheap for him. While we are looking for next Lincoln and Washington and he is just looking for the next election. That’s why Obama chose Bernanke, Summers, Geithner, all are setting up for next election.

    Of course, he use Volcker as Window dressing, and probably Krugman is next.

    IMHO, Easy momentary will keep going on, GSEs will continue, and new stimulus package will come out next year (who care this year’s election dude), so does short term prosperity and Obama will get reelected, Omen.

    The judgment day for GSEs: 2016

  11. awgee

    The only way to end all the immoral government subsidies is to vote for those who would increase and empower those subsidies and more. Resistance persists. Give the progressives more power and democracy will collapse.

    1. Swiller

      Really? How about we give some power to more than the two parties who have been sodomizing us for the past 100 years?

  12. on housing subsidies

    IMHO, the details are a little complicated but the HMID competes with the standard deduction. Whether the HMID is advantageous for buyer(s) depends on whethere the buyer is an individual or a married couple, and only if they have a loan with interest, property taxes and other deductions that exceed the standard deduction. It will benefit a married couple filing jointly only if they buy a home worth 225,000 or more and interest rate of 4.75% or higher. Otherwise, it’s a wash. This benefit will diminish even more as IR pointed out as the standard deduction increases, and as buyers pay less interest as time goes buy as evident by the amortization tables. The numbers are different for singlr filers.

    One may argue that ending the HMID will hurt those current owners who benefit from it, but will help lower prices to new buyers going forward.

    IMHO, these so-called subsidies are a social engineering tool to encourage home “ownership” as opposed to renting but the subsidies ended up costing everybody (all tax payors) more money because home prices generally rise in proportion to affordibility.

  13. QueenCityEddie

    As a homeowner claiming the deduction, I can get my head easily around not worrying about the probable impact on the dollar value to my asset: I assume that like assets would pretty much all feel about the same impact, so were I to ever sell, my next housing solution would compensate me for the reduced net on my current house. But I don’t like the current and future negative cash flow impacts of not having the deduction. We live in a democracy and I accept that tax rules can change, but I also will vote against anyone that proposes such a change that does not somehow compensate me for the on-going cash flow hit. Screw with the value of my house: fine. Screw with the value of my house and raise my taxes at the same time: no way.

  14. IrvineRenter

    One of the dumbest things I have read recently:

    The Current U.S. Housing Bubble: How to Use the Homebuyer Tax Credit

    The homebuyer tax credit extension has caused a bubble in the U.S. housing market and, if you are not taking advantage of it, you could be throwing away thousands, if not hundreds of thousands, of dollars.

    There are four main ways that you can make the current housing bubble work for you:

    THE TAX CREDIT: To begin with, the homebuyer tax credit provides up to $8,000 that can be claimed on your 2010 tax returns. The exact amount received is dependent on whether you are purchasing your first home, or not, and the price of the home: First-time buyers can claim up to $8,000, while experienced homebuyers are eligible for credits up to $6,500. The amount of the credit is equal to 10 percent of the purchase price of the home.

    FHA INSURED LOANS: In addition, homebuyers may be eligible to receive the value of their credit in advance when they use that credit to offset the down payment or closing costs of an FHA (Federal Housing Administration) secured loan. Being that FHA secured loans (FHA loans) provide cheaper interest rates and reduced costs in comparison to their traditional counterparts, applying your homebuyer tax credit toward an FHA loan provides double value (the tax credit and the savings realized from a lower cost of credit).

    HISTORICAL LOWS: Even if you do not choose an FHA loan, buying now can be a good idea for other reasons, namely that current mortgage interest rates favor buyers, as do the other terms of home loans on offer, such as closing costs, broker commissions, and administrative fees. Many lenders have lowered the cost of credit overall in order to entice buyers.

    PROPERTY VALUES: Further, you receive an additional benefit from using the homebuyer tax credit in the sense that, if you are buying now, you are buying in a down market. While some sources estimate that U.S. property values will not return to “normal” prices – used in this sense to mean “fair” – for several years, many homebuyers purchase their properties with the idea of retaining the property for far longer than that.

    Credit Loan: The Current U.S. Housing Bubble: How to Use the Homebuyer Tax Credit http://www.creditloan.com/blog/2010/07/27/the-current-u-s-housing-bubble-how-to-use-the-homebuyer-tax-credit/#ixzz0uuvts9Tz

    1. Stock Investor

      Another dumb idea. Private extension of home buyer tax credit:

      “For Buyers:
      – Receive up to an $8,000* credit at signing

      For Sellers:
      – Add prominence to your listing with an $8,000* incentive, applied at closing, for interested buyers

      – Do your part to keep the momentum of the government tax credit going”


    2. AZDavidPhx

      Yes, buy now and hold on for those prices to come roaring back in a few years! Just like what happened in Japan! LOL!

      Why do they bother with the BS? Why don’t they just say something like this:

      8000$ you silly little monkeys! Come and get it! You like money in your hands doncha?! Free money! Just buy a house! Hurry! Come get your free money!

  15. freedomCM

    iirc, the “homeownship provides community benefits” studies were all poorly carried out.

    If you compare “owners” with “renters” instead of being widely disparate in age and income, were well matched, all of the benefit goes away.

    Unfortunately, this is very difficult to do correctly.

    Is it better to compare renters in irvine (students/lower income workers/IrvineRenter) with owners (older, wealthier, except IR)?

  16. freedomCM

    Also, I would bet that if you compare current “owners” who are underwater with “renters” who have substantial assets, you would find the latter to be better community members (at least by lawn maintenance standards!)

    1. alan

      Not always true…

      I have substantial assets but mow my own lawn (an hour every other week, BFD) but this year I have been so busy that I just couldn’t get to it until just last week.

      Not that one exception breaks the rule.

  17. jb

    The area where I just sold a couple of months ago appears to be in a downward spiral (and much increased inventory).

    IrvineRenter…I think we’ll be seeing a certain song by Tom Petty on your blog soon.

  18. irvine_home_owner

    Do we actually think that getting rid of it of the mortgage writeoff will push prices down low enough so that renters can afford to buy?

    That’s like saying raising interest rates will make prices go down proportionately.

    1. IrvineRenter

      Getting rid of the HMID is not about creating affordability, it is ending a subsidy that does nothing but inflate prices and benefit high wage earners who buy homes.

      1. newbie

        Income tax deductions are about special interest groups that make campain contributions. Without one’s favorite cause, the milk of the current system would dry-up.
        If the elected officials could not make hand-outs, they could not hold their hands outs.

  19. Joe R

    We are all on the right and wrong side
    of tax breaks and penalties. Poor
    people pay no income tax, but the vices
    they favor have heavy taxes (smokes,
    booze & lottery tickets). I am coming
    to the point where my mortgage deduction
    is disappearing soon, but I’ve got other
    things going my way.

    Contrary to what the accepted wisdom is,
    rich people don’t always “win” at
    everything. Look at all the big corporations that went belly up in the last 20 years!
    If the owners didn’t hedge, then they
    lost it all. Remember the Hunt Bros.?
    (Yes, I know they didn’t go completely
    broke, but they went from being players to

    I do see a big difference between tax
    deductions (“letting” me keep my own
    money) and tax credits (giving me your
    money). This may not be accepted
    wisdom to all who post on this blog.
    Hey, the con artists in jail aren’t
    filing for tax deductions, they’re
    filing for tax credits, like the
    home buying credit!

    I like Prop 13, because it allows you
    to plan long range what your tax payments
    will be. Not all income is inflation
    indexed. I have a small pension
    coming to me that isn’t indexed at all.
    I like the idea of punishing the
    government for inflation. Of course,
    if everything was indexed to inflation
    perfectly, there would be no purpose to
    inflating the currency, so we know that
    will never happen!

    I’m OK with eliminating the mortgage
    deduction and housing credits. I’m not
    a realtor!

    1. lowrydr310

      Contrary to what the accepted wisdom is,
      rich people don’t always “win” at
      everything. Look at all the big corporations that went belly up in the last 20 years!
      If the owners didn’t hedge, then they
      lost it all.

      Big Corporations and “rich people” are two completely separate entities. A big corporation could go belly up in the same year that each member of its executive board received $5M in compensation.

      1. Joe R

        True, but they won’t be drawing any more bonuses from that source. And there have been some really huge personal bankruptcies.

        Here’s an example from Wikipedia on N. Bunker Hunt:

        “Hunt’s bankruptcy forced him to liquidate his thoroughbred operations. A 1988 dispersal sale of 580 horses at Keeneland Sales brought in $46,911,800, at that time the highest amount in the history of thoroughbred auctions.”

        Of course the Hunts inherited the money they blew. I guess that’s God’s joke on the Rich. Giving them inept children.

  20. winstongator

    Renters de-facto benefit from mortgage interest deductions because landlords can deduct their interest payments, which should, in invisible hand fashion, translate into lower rents. Looking at it, many rental properties would not be profitable without being able to deduct interest. The ability to deduct interest can easily lower rents for a given profit level by 15-20%, varying with the leverage level of the property.

    1. Joe R

      I thought that interest on a rental property was deductible from the rents as a business expense. Not the same as the mortgage deduction from personal income. You can’t deduct repairs on your house from income, but on a rental, they offset the income.

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