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