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The MID encourages the purchase of larger homes. Eliminating that incentive is a plus for cities, where you will naturally have less square footage to work with. There is also a powerful connection between the type of housing structure and the type of ownership (i.e. owner-occupied, condo, rental, etc). Getting rid of the MID means renting is more attractive in relative terms, which is a good thing for cities since they have far more rental housing stock.

The Austin Contrarian sums up some of the issues:

http://www.austincontrarian.com/austincontrarian/2008/12/rethinking-federal-housing-policy.html

Federal housing policy -- particularly the mortgage interest deduction -- has different effects depending on the market. In elastically-supplied markets like Houston or low-demand markets like Detroit, the mortgage interest deduction increases consumer demand and stimulates the construction of more housing.

In high-demand, inelastically-supplied markets, though, the benefits of the mortgage interest deduction flow to existing homeowners. The mortgage interest deduction paradoxically makes housing in these markets less affordable.

High-demand, inelastic supply - that's DC, alright.

by Alex B. on Nov 12, 2010 11:38 am • link • report

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