Mortgage Interest Deductions and Homeownership: An International Survey

Swiss Finance Institute Research Paper No. 12-06

38 Pages Posted: 12 Feb 2012 Last revised: 24 Aug 2015

See all articles by Steven C. Bourassa

Steven C. Bourassa

Florida Atlantic University

Donald R. Haurin

Ohio State University (OSU) - Economics

Patric H. Hendershott

University of Aberdeen - Aberdeen Business School

Martin Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM); Swiss Finance Institute; University of Aberdeen - Business School

Date Written: March 13, 2013

Abstract

The aim of this paper is to review the international evidence on the impacts of mortgage interest deductions on homeownership rates. The probability of becoming a homeowner is a function of the relative cost of owning and renting, borrowing constraints, permanent household income, and a set of taste variables. The relative cost of owning and renting is in part a function of house prices and the annual user cost of owner-occupied housing. Tax policies affect the user cost of owner-occupied housing and, in turn, the probability of becoming a homeowner. They also affect the price of housing due to capitalization effects. We draw on a number of empirical studies that have been conducted for several countries in North America, Europe, Australasia, and Asia. The empirical evidence suggests that, contrary to popular wisdom, the MID generally does not increase the ownership rate. This result is likely due to the fact that the MID is capitalized into house prices, especially where housing supply is inelastic.

Keywords: homeownership, tax policy, house prices

JEL Classification: R21, R31, G21, H2

Suggested Citation

Bourassa, Steven C. and Haurin, Donald R. and Hendershott, Patric H. and Hoesli, Martin Edward Ralph, Mortgage Interest Deductions and Homeownership: An International Survey (March 13, 2013). Swiss Finance Institute Research Paper No. 12-06, Available at SSRN: https://ssrn.com/abstract=2002865 or http://dx.doi.org/10.2139/ssrn.2002865

Steven C. Bourassa (Contact Author)

Florida Atlantic University ( email )

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Donald R. Haurin

Ohio State University (OSU) - Economics ( email )

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Patric H. Hendershott

University of Aberdeen - Aberdeen Business School ( email )

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Martin Edward Ralph Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM) ( email )

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University of Aberdeen - Business School ( email )

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