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About Street roots. (Portland, OR) 1998-current | View Entire Issue (Jan. 13, 2017)
Street Roots • Jan. 13-19, 2017 News MORTGAGE, fro m page 4 director with the Oregon Association of Realtors. homeownership rates would decline and could According to the U.S. Census, the undermine the housing market. homeownership rate was 55 percent in 1950. It is also credited with keeping home In 1995, it had reached 65 percent. The rate prices elevated, with the market factoring the continued to climb, to 69 percent in 2004, deduction as a kind of rebate on the sale before the housing market collapsed. The price. Without it, or with it reduced, rate has declined back to 1995 levels. forecasters with the National Association of Oregon’s homeownership rate ended 2016 Realtors say, prices would decline. at just over 63 percent, malting it the 15th lowest in the nation, Cleave said. Over the years, there have been numerous attempts to modify the mortgage interest ortgage interest has been a tax deduction, from the national level on down. deduction since 1913, when the U.S. Most of those never got off the ground Constitution received the 16th Amendment against the opposition of the National sanctioning income taxes. It’s widely believed Association of Realtors and its affiliates, this was intended more as a benefit to which boasts being the nation’s largest trade businesses that considered interest payments organization with more than 1.1 million as a cost of doing business, rather than for members. In 2012, the national group homeowners, who at the time were more successfully campaigned to amend Oregon’s likely to have paid cash outright for their constitution to prohibit a real estate transfer homes. tax to fund low-income housing assistance. That began to change after World War II, Oregon Association of Realtors wields state when homeownership became a pillar of the and national resources through its political federal government. Today, homeownership action committee, Achieving the American rates hovet around 65 percent nationally. Dream Coalition. The Oregon Home Builders By the 1980s, under the tax reforms Association, which has also come out against spearheaded by Oregon’s own Sen. Bob changes to the deduction, is fortifying its Packwood, interest deductions were scaled Oregonians for Affordable Housing PAC in back. You could no longer deduct your credit anticipation of the upcoming session. Combined, the two groups have raised more card interest, for example. But the mortgage than half a billion dollars in 2016. deduction remained intact as a subsidy to In 2015, a proposal to cap the mortgage ensure that the dream of homeownership interest deduction on second homes at remained accessible to the middle class. $125,000 inincome failed to move out of the Today, at the federal level, it’s a $75 billion a H ouse Revenue Com m ittee, chaired by Rep. year nationwide subsidy for homeowners, PhilBarnhar t(D-LaneandLinn counties).»- even on theirsecondhome. M R ealtors defend th e deduction, saying th e majority of people who file for it make $100,000 or less annually. In terms of actual dollars, however, the majority goes to the highest income brackets. “One of the weird features of the MID is because it’s based upon a deduction rather than a credit is that some people gain more benefit than others, based strictly upon the tax bracket that they’re in,” said Gerard Mildner, associate professor of real estate finance at Portland State University. Higher-income homeowners in a "We to ta lly believe that the higher tax bracket mortgage Interest iedaetiea have a greater Is a very strong laceatBre lo r percentage deducted hemeewaerslilpr and homeaw» from their taxes. “So what it does is ershlp is the foundation lo r a give more of an stable finan cial ialnse/* incentive to people in - S H A W N CLEAVE high-income tax G O V ER N M EN T AFFAIRS DIRECTOR brackets to become "HE O R EGO N ASSO C IA T IO N OF REALTORS homeowners because they’re simply borrowing at a lower after-tax rate than everybody else,” Mildner said. According to the Oregon Center for Public Policy, more than 60 percent of Oregon’s deduction goes to the top fifth of the state s earners. The Oregon Association of Realtors says the current policy, which echoes federal tax law, is a key incentive for homeownership at all income levels. “We totally believe that the mortgage interest deduction is a very strong incentive for homeownership, and homeownership is the foundation for a stable financial future,” said Shawn Cleave, government affairs B a rn h a r t sa id h e a n tic ip a te s th e r e w ill b e more interest in working on this now than in previous sessions. “I’m expecting to see several proposals for ways to improve Oregon’s housing-related tax subsidies in 2017, and I think it’s time we took a comprehensive look at these subsidies. We have to make sure housing subsidies in the tax code benefit the families who really need help with basic housing needs. We also need to make sure tax expenditures meant to encourage homeownership are having the intended impact at a reasonable cost given other priorities for scarce public dollars.” He added that if members “continue to hear from their constituents that affordable housing needs to be a priority, I’m hopeful we’ll be able to make progress.” n small, coastal communities, the housing market is buoyed up by people who live elsewhere buying second homes. These communities rely on the vacation and tourism industry as their economic base, said Cleave, of the Oregon Association of Realtors. Without the deduction, “It would be a considerable reduction in purchasing,” he said. Jerry Johnson is an economist with Johnson Economics in Portland, which specializes in working with developers and urban planning. He said that a second home mortgage is probably somewhat of an incentive, particularly for small, vacation- oriented counties. “The elimination of the deduction on second homes would likely impact the Oregon Coast and Central Oregon, and may reduce second-home ownership marginally and/or reduce pricing. The impact would probably not be that pronounced though,” he said. I Page 5 Regarding a $10,000 cap on interest, Johnson said it would probably not affect most homeowners, particularly first-time buyers. “The impact of this On first-time homebuyers is likely negligible, as they would not typically have over $10,000 in annual mortgage interest in the current rate environment,” Johnson said. “This likely doesn’t have a substantive impact on homeownership rates. It would seem like the proposed change would dampen some pricing at the upper end of the market, as well as second-home “ W e f a s o w from the data that sales. This could be the deduction Is not prom oting e p | or housing homeownership^ Oregon ranks costs m areas such as „ the 'Oregon Coast and P®®»1? *® *®»“ ® s t a t e s that don't Central Oregon, but ®*®8' o f f e r the deduction." these economies also t-ko JUAN ord 6$ ez ueneni irom m e c o m m u n ic a t io n s d ir e c t o r w it h , TWE construction of O r e g o n ce nte r for pu blic p o l ic y , second homes.” But buyers of coastal vacation homes don’t need a ■' housing subsidy, say proponents of the change. “Our goal is to not take it away from people for ordinary folks,” said Ordonez, of the Oregon Center for Public Polity. “It’s only going to affect those at the very top of the income scale who don’t need a subsidy. To the industry, we would say - look, this is a poorly designed way of promoting hom eow nership; It’s no t prom oting homeownership. If your industry benefits from increased hom eow nership, you Will do b e tte r u n d er our plan, which will actually increase homeownership.” s; Mildner, with PSU, said the change could dampen second-home purchases if second mortgages no longer qualify. However, those mortgages could qualify for the deduction if they’re absorbed in refinancing the initial home’s mortgage. That could also mean that home prices could dip. “The supply will probably stay the same,” Mildner said. “But it will be a demand change, and it’s going to be a demand change to probably cause the price of homes to fall a little bit at the top end of the market” Tnder Oregon’s tax code, the stated purpose of the deduction is “to promote homeownership by lowering the cost of mortgages.” “It’s not meeting the one stated goal,” Ordonez said. “If one stops to think about it, if that’s the goal, then you’ve designed the wrong kind of policy altogether to achieve that goal. Because we have a subsidy designed to steer most of the tax benefits to those at the top. To those who already own a home. It’s structured in a way to nbt accomplish the goal. “That’s not just a theoretical argument We know from the data that the deduction is not promoting homeownership,” Ordonez said. “Oregon ranks poorly to some states that don’t even offer the deduction.” Ordonez was citing information from the Census’ American Communities Survey, which showed that at the close of 2015, Oregon’s homeownership rate, at 61 percent, was lower than Texas, Alaska, Washington, T U See MORTGAGE, page 13
