The geography of mortgage interest deductions

Yashar Blouri, Simon Büchler and Olivier Schöni

Journal of Urban Economics, 2023, vol. 138, issue C

Abstract: We investigate the heterogeneous impact of the US federal mortgage interest deduction (MID) on households’ location and tenure decisions. We develop a spatial general-equilibrium model featuring non-homothetic preferences in which households can choose whether to claim the MID or a standard tax deduction. Repealing the MID decreases homeownership rates more strongly in central areas because owner-occupiers migrate to the countryside. Welfare increases slightly because positive externalities from less congested housing markets and undistorted tenure decisions outweigh productivity losses in central locations. An increase in standard tax deductions, as implemented in 2018 by the Tax Cuts and Jobs Act, leads to a similar welfare increase.

Keywords: Tax deduction; Residential location; Tenure choice; Rental Markets; Housing supply (search for similar items in EconPapers)
JEL-codes: H2 H3 R1 R3 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:138:y:2023:i:c:s0094119023000748

DOI: 10.1016/j.jue.2023.103604

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