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The Geography of Housing Subsidies

Yashar Blouri, Simon Büchler, Olivier Schöni

Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft - CRED

Abstract: We investigate the spatially heterogeneous impact of the US federal mortgage interest deduction (MID) on the location and tenure decisions of households. We develop a general-equilibrium model at the county level featuring an endogenous itemization of housing subsidies. Despite being an important tax expenditure, repealing the MID would only slightly lower homeownership rates while leaving welfare mostly unchanged. The policy is ineffective because it targets locations with congested housing markets, creating a spatial shift of the housing demand toward areas that capitalize the subsidy into higher prices. We provide evidence that a repeal of the MID is to be preferred to an increase of standard tax deductions as recently implemented under President Trump's administration.

Keywords: housing subsidies; residential location; tenure choice; housing supply (search for similar items in EconPapers)
JEL-codes: R1 R3 H2 H3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo and nep-ure
Date: 2019-06
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