Edward Glaeser brings up the home mortgage interest deduction in his last NyTimes editorial. Economists typically don't care for this morsel of federal policy much because it is an especially regressive tax break and probably does not actually encourage homeownership. But Glaeser also mentions another effect with more relevance to the purposes of this blog:
"The deduction encourages people to buy larger, single-family detached homes, and that increases carbon emissions and pushes people out of cities. The deduction encourages people to buy more expensive homes, which are generally bigger homes."I might also add from a planning perspective that this distortion of investment in housing may have an effect on local land use decisions as well. It may add more heat to debates and skew the incentives in a community's comprehensive planning efforts. Not only are homeowners working to create the kinds of places they would like to live in, but they are often also protecting a huge proportion of their net wealth. These two goals sometimes overlap, but they sometimes work in cross-purposes to each other.