How federal housing money helps rich people more than poor people

How can it be that when it comes to government help paying for homes, wealthy Americans–earning more than $200,000 a year– get an average of four times more in benefits per household than the poorest Americans, those making less than $20,000 a year? The answer is simple: mortgage interest tax credits.

A quick review: when you buy a house, you take out a mortgage. For the next many years, you pay interest on that mortgage. Let’s say the interest you paid in a year added up to $5000. When it comes time to pay taxes, you can deduct that $5000 from your income–so you’ll owe less in taxes.

By allowing homeowners this tax deduction, the government ends up putting about 60 percent of its total housing funds in service of the rich. Some of this money goes to help people paying off their second homes. Meanwhile, only one in four desperately poor renter households that qualify for housing assistance is getting it.

This is partly a problem of perception: few people think of mortgage interest tax deductions as “housing assistance,” even though that’s exactly what it is. The very concept of a mortgage was made possible way back in 1934 by an act of Congress, in order to make it easier for people to buy homes. The mortgage interest deduction was established in 1986. But today, the majority of homeowners are doing okay by official standards–meaning that they pay less than 30 percent of their income to housing. For those households, the mortgage interest deduction is more like a bonus than a survival tool.

Meanwhile, twenty million renter households can’t afford their rent. Another 1.5 million Americans are homeless–living in shelters, hotels, or on the street–because they can’t find homes they can afford. Funds for public housing and Section 8 housing have faced deep cuts in recent years. And public-private partnerships that use tax credits to encourage the construction of low-cost rentals face funding shortages that limit their reach.

The mismatch between spending and need is even more disturbing when we consider that we are living through the greatest surge in renter numbers in recorded history. More households are renting in part because they can’t afford to own homes. Renters currently make up 60 percent of those who spend more than half their income on housing. All told, the government spends more than three times as much on helping homeowners than it does on helping renters. More than half of the assistance to homeowners goes to those who make more than $100,000. As a report from the Committee on Policy and Budget Priorities put it, “It is difficult to see the policy purpose served by providing such large benefits to higher-income households, who in most cases could afford to purchase a home without subsidies.”