Sunday, November 11

Tax Policy behind McMansions

Many people have picked up on a certain irony in contemporary American life. As our family size and social networks shrink, the size of our houses increases. It's as if we are attempting to compensate for actual community with large artifacts dedicated to the concept of community. Why are we doing this? While there are undoubtedly cultural values and status cues involved, the simple economic consequences of current federal tax policy could be contributing to the problem.

Clive Crook, in this month's Atlantic (subscription required), weighs the relative value of home-ownership and evaluates some of the tax policies that have been used to encourage it. He finds that tax deductions on mortgage interest rates don't actually meet their intended purpose, to encourage renters to consider purchasing a home. Instead, they encourage the affluent to purchase a larger and more expensive home than they otherwise would. Furthermore, these federal policies skew upward the market's incentives for risk-taking, which is the whole reason we ended up in the housing bubble and devastating bust. Perhaps, as we lay at the bottom of the cycle, the political will to make some changes could be generated. Although there are lots of special interests addicted to this particular form of government largess, Rep. John Dingall (D-Mich)) is taking a shot at it.

Large houses on large plots of land are a concern to urbanists simply because they spread us out. This triggers a feedback loop; the arrangement requires an automobile, which further isolates us socially, leads to homogeneous zoning, and ultimately destroys a city. And the whole system is a tremendous burden on the planet.

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