By Nick Timiraos | The Wall Street Journal
Federal tax benefits for homeowners primarily help wealthier people borrow more money to buy larger houses rather than boost homeownership, according to a new study.
The ZIP Code-level analysis of Internal Revenue Service data, conducted by a team of economists for the right-leaning R Street Institute, examined how tax benefits are distributed across income levels and major metropolitan areas. The study estimates that tax preferences, particularly the mortgage-interest deduction, have helped drive up the size of houses by as much as 18% in the nation’s most affluent areas while not broadly encouraging people to buy homes.
Policy makers have long supported homeownership in the tax code because it is viewed as having broad societal benefits, and they have been loath to curb the mortgage-interest deduction, which is popular with voters and strongly defended by the real-estate industry. But the new findings add to a growing body of economic research that suggests Americans don’t benefit broadly from the tax preferences, which the study estimates cost the government $175 billion annually in forgone revenue.
