Mortgage Interest Deductions and Homeownership: An International Survey
Swiss Finance Institute Research Paper No. 12-06
38 Pages Posted: 12 Feb 2012 Last revised: 24 Aug 2015
Date Written: March 13, 2013
The aim of this paper is to review the international evidence on the impacts of mortgage interest deductions on homeownership rates. The probability of becoming a homeowner is a function of the relative cost of owning and renting, borrowing constraints, permanent household income, and a set of taste variables. The relative cost of owning and renting is in part a function of house prices and the annual user cost of owner-occupied housing. Tax policies affect the user cost of owner-occupied housing and, in turn, the probability of becoming a homeowner. They also affect the price of housing due to capitalization effects. We draw on a number of empirical studies that have been conducted for several countries in North America, Europe, Australasia, and Asia. The empirical evidence suggests that, contrary to popular wisdom, the MID generally does not increase the ownership rate. This result is likely due to the fact that the MID is capitalized into house prices, especially where housing supply is inelastic.
Keywords: homeownership, tax policy, house prices
JEL Classification: R21, R31, G21, H2
Suggested Citation: Suggested Citation