And thinking about it conceptually, if you're thinking about buying or renting, no one's just going to want to pack all their stuff and move unless there are other reasons to do so. If there is some cost offset, in this case a mortgage interest deduction, that reduces the cost and makes it more palatable, then maybe I want to go buy a house instead. Does it provide an equalizer in some decisions? Probably, but I don't think you could say it's such a huge sway. Once you get outside of the expensive portions of the country, there's not a lot of benefit from this.
But we still need some sort of incentive to revive the housing market?
This marketplace needs virtually every possible buyer you could get into it. The $8,000 homebuyer's tax credit proved that very well. It advanced a lot of demand, to be sure, but it also fostered some demand. I know several folks who jumped into the market who would not normally have gotten into the market. To the extent that it is a deterrent, it's really hard to say this is a great idea. The consideration is that when homes don't sell, lots of states [lose out on] a lot of tax revenue because of the realty transfer tax. So if another home which might have sold with a little incentive that [the deduction] might provide doesn't sell, does that create more tax damage to the state? There's a lot of these interconnected things—it's not as simple as saying, 'Look at all the money,' because we've built policy in this country around fostering housing for 70 years or longer and one of those components we've built is tax policy to go foster homeownership. There may be wide-ranging and unforeseen issues which come as a result of that change.
How likely is it that the mortgage interest deduction will be abolished?
It's come around a couple of times since I've been doing this. It hasn't survived the political process yet and while there is some good consideration of it once again in light of our fiscal troubles, who would stand up and go against the only tax break available to the American homeowner? It's a populist program and no one wants to be the one standing up there holding the sword of fiscal responsibility and get run over by the train of angry homeowners.
I think most likely what you will find is that limits will come into being. Those might be income-based limits, those might be total mortgage indebtedness, it might be the deduction will only be available for primary residences as opposed to primary and secondary residences, as it is now. I suspect that any sort of a "compromise" would trim back the maximum total mortgage indebtedness, or income limitations, or otherwise means tested in order to have only certain borrowers qualify.
What would the time frame look like?
I don't think anyone is going to do this on a cold-turkey basis, I think anything would be on a phased-in basis. Elimination would probably come on a phased-in basis, but a means-tested change, limits, caps would come in on a much faster phase-in, to try to limit disturbance and see what happens. There are all these static projections that Congress likes to make, but humans don't work in static form, they work in dynamic form. If they make the change and suddenly no one is buying luxury homes as a result, are we willing to admit that we need this policy to help move that market forward? There's no way to know.