If no one could afford a house without an interest deduction, wouldn't the prices have to lower to a point where they cleared the market?
This shit also applies to student loans!
Except people would expect and would be ok with, different size and quality houses for different levels of income. We want everyone to have access to the same quality of education regardless of income.
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mrt144King of the NumbernamesRegistered Userregular
If no one could afford a house without an interest deduction, wouldn't the prices have to lower to a point where they cleared the market?
Depends. In many cases, people would simply rent the property, provided that the rental revenue received was enough to cover the recurring costs (including interest and property taxes).
How does this vary from HOAs?
HOAs are nearly as bad, yes.
Who would rent which property?
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mrt144King of the NumbernamesRegistered Userregular
If no one could afford a house without an interest deduction, wouldn't the prices have to lower to a point where they cleared the market?
This shit also applies to student loans!
I thought about including that too, but I didn't want to muddle the point.
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mrt144King of the NumbernamesRegistered Userregular
Canadian federal income tax does not allow a deduction from taxable income for interest on loans secured by the taxpayer's personal residence. But homes used in businesses as a landlord who owns a rental residential property can deduct interest as any other reasonable business expense. The difference being the deduction is allowed only when the property is not used for the taxpayer's personal use but is used as in any other type of business. However, there may be additional exclusions for passive activity losses.
An indirect method for making interest on mortgage for personal residence tax deductible in Canada is through an asset swap, whereby the homebuyer sells his existing investments, purchases a house in full or in part by the sale, gets a mortgage on the house, and finally, buys back his investments with the money from the mortgage. The Supreme Court of Canada has ruled in 2001 in the Singleton v. Canada case [1] that transactions in the asset swap are to be regarded as distinct, thus rendering the interest on home mortgage acquired as part of the asset swap tax deductible.
The home ownership rate in Canada is about the same as in the United States,[2] but Canadians have about 70%[3] equity in their homes on average (i.e., 30% mortgage debt), compared to only 45% average home equity in the United States.
Such price adjustments would be very slow. Or possibly worse, the price adjustments may happen fairly rapidly, but people will stop moving due to it. Because selling your house at a substantial loss isn't an option for many people.
I wholeheartedly agree that the denivellating effect of mortgage income tax deductions are almost impossible to justify as government policy, but getting rid of those already in place would require a very soft touch even if it was somehow politically viable to do so. A possibility is an overtime lowering of the cap (over decades perhaps to the point where it's reaches the loan that correlates with an average mortgage) , and perhaps lowering the percentage of deduction to the middle-tier of income tax (If you do not, high income earners get more effective subsidy than medium ones, because they get to deduct at 33% instead of 25% (US values), though this effect is relatively small in the US compared to over here).
If no one could afford a house without an interest deduction, wouldn't the prices have to lower to a point where they cleared the market?
This shit also applies to student loans!
Does it? Do the places around the world with heavily subsidized education have it's cost increasing as rapidly as, say, private US universities?
Also, with homes people would just buy smaller. With education, people would just not be able to go, fucking both them economically and the US in the "educated workforce" department.
It's not like post-secondary education was more accessible pre-student loans.
People unable to afford the house would rent it instead.
This is still common in my area, there are many houses and townhouses owned by people who have moved away, but who are unwilling to sell at the loss they'd have to take. So they rent the property out instead, because (presumably) the rent they collect covers the interest and property tax while they wait for the property value to rebound.
As long as the property is no longer depreciating at a rate faster than the rent money comes in, it's an alternative.
This area may be unique, though, given that we have a highly transient population that will already lead to lower ownership rates (military).
Your assumption that home values would lower until they cleared the market assumes that the sellers don't have alternatives. But they do.
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mrt144King of the NumbernamesRegistered Userregular
People unable to afford the house would rent it instead.
This is still common in my area, there are many houses and townhouses owned by people who have moved away, but who are unwilling to sell at the loss they'd have to take. So they rent the property out instead, because (presumably) the rent they collect covers the interest and property tax while they wait for the property value to rebound.
As long as the property is no longer depreciating at a rate faster than the rent money comes in, it's an alternative.
This area may be unique, though, given that we have a highly transient population that will already lead to lower ownership rates (military).
Your assumption that home values would lower until they cleared the market assumes that the sellers don't have alternatives. But they do.
What about new housing developments?
And I would love to see a number put on how much more affordable housing is due to the interest deduction for someone with limited tax liability already. I imagine theres a pretty limited income range where the following factors are true:
1. You make enough to save for a downpayment
2. You would be reducing your tax liability by an appreciable amount
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zepherinRussian warship, go fuck yourselfRegistered Userregular
edited October 2011
People also rent because buying a house these days requires a significant upfront investment, and even though it is usually more fiscally advantageous to buy a house as opposed to renting one, the initial up front cost is high. Even without the interest write off owning is far better money wise than renting.
zepherin on
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mrt144King of the NumbernamesRegistered Userregular
People also rent because buying a house these days requires a significant upfront investment, and even though it is usually more fiscally advantageous to buy a house as opposed to renting one, the initial up front cost is high. Even without the interest write off owning is far better money wise than renting.
That's why the interest deduction doesn't make sense in terms of affordability. The barrier to entry isn't monthly payments for a renter, it's downpayments (barring all the shenanigans of the past few years with ARMs etc, but we've seen how that's turned out for home ownership rates).
People also rent because buying a house these days requires a significant upfront investment, and even though it is usually more fiscally advantageous to buy a house as opposed to renting one, the initial up front cost is high. Even without the interest write off owning is far better money wise than renting.
That's why the interest deduction doesn't make sense in terms of affordability. The barrier to entry isn't monthly payments for a renter, it's downpayments (barring all the shenanigans of the past few years with ARMs etc, but we've seen how that's turned out for home ownership rates).
Aren't there programs in place to assist low-income buyers on the down payment end, though? I seem to remember as kid we did an FHA loan, and obviously my VA home loan allowed me to buy with no down payment.
Canadian federal income tax does not allow a deduction from taxable income for interest on loans secured by the taxpayer's personal residence. But homes used in businesses as a landlord who owns a rental residential property can deduct interest as any other reasonable business expense. The difference being the deduction is allowed only when the property is not used for the taxpayer's personal use but is used as in any other type of business. However, there may be additional exclusions for passive activity losses.
An indirect method for making interest on mortgage for personal residence tax deductible in Canada is through an asset swap, whereby the homebuyer sells his existing investments, purchases a house in full or in part by the sale, gets a mortgage on the house, and finally, buys back his investments with the money from the mortgage. The Supreme Court of Canada has ruled in 2001 in the Singleton v. Canada case [1] that transactions in the asset swap are to be regarded as distinct, thus rendering the interest on home mortgage acquired as part of the asset swap tax deductible.
The home ownership rate in Canada is about the same as in the United States,[2] but Canadians have about 70%[3] equity in their homes on average (i.e., 30% mortgage debt), compared to only 45% average home equity in the United States.
I think a big part of the delta on the equity % can probably be attributed to 1) the popularity of the no/low down payment 2) the massive crash in the US housing market.
If you payed 100k into a 300k mortgage, and then the house only becomes worth 200k, you suddenly have 0% home equity.
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zepherinRussian warship, go fuck yourselfRegistered Userregular
Aren't there programs in place to assist low-income buyers on the down payment end, though? I seem to remember as kid we did an FHA loan, and obviously my VA home loan allowed me to buy with no down payment.
Kind of. Getting an FHA can be a bitch. Banks don't like giving them out and the government doesn't tell you what you need to do in clear concise wording. It can be done but often you just get your loan rejected.
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mrt144King of the NumbernamesRegistered Userregular
Canadian federal income tax does not allow a deduction from taxable income for interest on loans secured by the taxpayer's personal residence. But homes used in businesses as a landlord who owns a rental residential property can deduct interest as any other reasonable business expense. The difference being the deduction is allowed only when the property is not used for the taxpayer's personal use but is used as in any other type of business. However, there may be additional exclusions for passive activity losses.
An indirect method for making interest on mortgage for personal residence tax deductible in Canada is through an asset swap, whereby the homebuyer sells his existing investments, purchases a house in full or in part by the sale, gets a mortgage on the house, and finally, buys back his investments with the money from the mortgage. The Supreme Court of Canada has ruled in 2001 in the Singleton v. Canada case [1] that transactions in the asset swap are to be regarded as distinct, thus rendering the interest on home mortgage acquired as part of the asset swap tax deductible.
The home ownership rate in Canada is about the same as in the United States,[2] but Canadians have about 70%[3] equity in their homes on average (i.e., 30% mortgage debt), compared to only 45% average home equity in the United States.
I think a big part of the delta on the equity % can probably be attributed to 1) the popularity of the no/low down payment 2) the massive crash in the US housing market.
If you payed 100k into a 300k mortgage, and then the house only becomes worth 200k, you suddenly have 0% home equity.
The home ownership rates are nearly the same though...
Canadian federal income tax does not allow a deduction from taxable income for interest on loans secured by the taxpayer's personal residence. But homes used in businesses as a landlord who owns a rental residential property can deduct interest as any other reasonable business expense. The difference being the deduction is allowed only when the property is not used for the taxpayer's personal use but is used as in any other type of business. However, there may be additional exclusions for passive activity losses.
An indirect method for making interest on mortgage for personal residence tax deductible in Canada is through an asset swap, whereby the homebuyer sells his existing investments, purchases a house in full or in part by the sale, gets a mortgage on the house, and finally, buys back his investments with the money from the mortgage. The Supreme Court of Canada has ruled in 2001 in the Singleton v. Canada case [1] that transactions in the asset swap are to be regarded as distinct, thus rendering the interest on home mortgage acquired as part of the asset swap tax deductible.
The home ownership rate in Canada is about the same as in the United States,[2] but Canadians have about 70%[3] equity in their homes on average (i.e., 30% mortgage debt), compared to only 45% average home equity in the United States.
I think a big part of the delta on the equity % can probably be attributed to 1) the popularity of the no/low down payment 2) the massive crash in the US housing market.
If you payed 100k into a 300k mortgage, and then the house only becomes worth 200k, you suddenly have 0% home equity.
The home ownership rates are nearly the same though...
They probably are now. Though, in a year or so, after the feds have let up on the foreclosure investigation, they're going to be higher in Canada, I'm sure.
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mrt144King of the NumbernamesRegistered Userregular
People also rent because buying a house these days requires a significant upfront investment, and even though it is usually more fiscally advantageous to buy a house as opposed to renting one, the initial up front cost is high. Even without the interest write off owning is far better money wise than renting.
That's why the interest deduction doesn't make sense in terms of affordability. The barrier to entry isn't monthly payments for a renter, it's downpayments (barring all the shenanigans of the past few years with ARMs etc, but we've seen how that's turned out for home ownership rates).
Aren't there programs in place to assist low-income buyers on the down payment end, though? I seem to remember as kid we did an FHA loan, and obviously my VA home loan allowed me to buy with no down payment.
the monthly payments should not excede 30% of monthly net income and there are total loan amount limits...which makes anything you qualify for as a low income person for your area likely unaffordable. But again, if increased ownership rates are the cause for the reduction, they're not working.
I mean, we really need to take some time every once and while and ask why we pursue some specific program and look at the results.
If no one could afford a house without an interest deduction, wouldn't the prices have to lower to a point where they cleared the market?
This shit also applies to student loans!
Except people would expect and would be ok with, different size and quality houses for different levels of income. We want everyone to have access to the same quality of education regardless of income.
Nope. The tax payer does not have to pay for you to go Harvard or a private school, nor should expect that. We do allow you to go to state school. The price is high because they realize they can rip off people and we sbusidize it via student loans. Remove the loans and the price goes back down to what it's worth.
I was under the impression that the Canadian banks were required to keep ownership of part of the loan and there were stronger down payment requirements(I know someone in the US personally who got a mortgage on his first home at over 100% of its value. ), nor was the bubble nearly as bad in Canada as in the US.
I was under the impression that the Canadian banks were required to keep ownership of part of the loan and there were stronger down payment requirements(I know someone in the US personally who got a mortgage on his first home at over 100% of its value. ), nor was the bubble nearly as bad in Canada as in the US.
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This shit also applies to student loans!
Except people would expect and would be ok with, different size and quality houses for different levels of income. We want everyone to have access to the same quality of education regardless of income.
Who would rent which property?
I thought about including that too, but I didn't want to muddle the point.
I wholeheartedly agree that the denivellating effect of mortgage income tax deductions are almost impossible to justify as government policy, but getting rid of those already in place would require a very soft touch even if it was somehow politically viable to do so. A possibility is an overtime lowering of the cap (over decades perhaps to the point where it's reaches the loan that correlates with an average mortgage) , and perhaps lowering the percentage of deduction to the middle-tier of income tax (If you do not, high income earners get more effective subsidy than medium ones, because they get to deduct at 33% instead of 25% (US values), though this effect is relatively small in the US compared to over here).
Does it? Do the places around the world with heavily subsidized education have it's cost increasing as rapidly as, say, private US universities?
Also, with homes people would just buy smaller. With education, people would just not be able to go, fucking both them economically and the US in the "educated workforce" department.
It's not like post-secondary education was more accessible pre-student loans.
People unable to afford the house would rent it instead.
This is still common in my area, there are many houses and townhouses owned by people who have moved away, but who are unwilling to sell at the loss they'd have to take. So they rent the property out instead, because (presumably) the rent they collect covers the interest and property tax while they wait for the property value to rebound.
As long as the property is no longer depreciating at a rate faster than the rent money comes in, it's an alternative.
This area may be unique, though, given that we have a highly transient population that will already lead to lower ownership rates (military).
Your assumption that home values would lower until they cleared the market assumes that the sellers don't have alternatives. But they do.
What about new housing developments?
And I would love to see a number put on how much more affordable housing is due to the interest deduction for someone with limited tax liability already. I imagine theres a pretty limited income range where the following factors are true:
1. You make enough to save for a downpayment
2. You would be reducing your tax liability by an appreciable amount
That's why the interest deduction doesn't make sense in terms of affordability. The barrier to entry isn't monthly payments for a renter, it's downpayments (barring all the shenanigans of the past few years with ARMs etc, but we've seen how that's turned out for home ownership rates).
Aren't there programs in place to assist low-income buyers on the down payment end, though? I seem to remember as kid we did an FHA loan, and obviously my VA home loan allowed me to buy with no down payment.
I think a big part of the delta on the equity % can probably be attributed to 1) the popularity of the no/low down payment 2) the massive crash in the US housing market.
If you payed 100k into a 300k mortgage, and then the house only becomes worth 200k, you suddenly have 0% home equity.
The home ownership rates are nearly the same though...
the monthly payments should not excede 30% of monthly net income and there are total loan amount limits...which makes anything you qualify for as a low income person for your area likely unaffordable. But again, if increased ownership rates are the cause for the reduction, they're not working.
I mean, we really need to take some time every once and while and ask why we pursue some specific program and look at the results.
Nope. The tax payer does not have to pay for you to go Harvard or a private school, nor should expect that. We do allow you to go to state school. The price is high because they realize they can rip off people and we sbusidize it via student loans. Remove the loans and the price goes back down to what it's worth.
http://www.american.com/archive/2010/february/due-north-canadas-marvelous-mortgage-and-banking-system
Again, what are we willing to do as a nation to provide home ownership and does it make sense?