Mortgage interest deduction

Personally, I’d rather see a drop in ridiculous housing values than depressed wages. Since we’re not getting higher wages anytime soon, the obvious way to lessen the economic squeeze on workers is anything that brings housing costs in line with their incomes. However, they don’t know if this will work:

One widely cited 1996 study by Dennis Capozza, Richard Green, and Patric Hendershott estimated that eliminating the mortgage interest and property tax deductions would reduce housing prices in the short term by an average of 13 percent nationwide, with regional changes ranging from 8 to 27 percent.

Using a similar approach, Benjamin Harris estimated that eliminating the mortgage interest deduction alone would lead to a
28 percent decline in metropolitan-area housing prices in cities where the average taxpayer buying a new house is in the 35 percent tax bracket. This decline would be less severe in cities with less-affluent residents.

Both studies find that price declines would be largest in cities with low rent-to-price ratios and high property tax rates.
When a similar analysis was done using data from 2006 to 2010, however, the results were much less clear, showing no discernible relationship between the MID and house prices.

The participants at our roundtable agreed that this means post-recession housing market conditions have disrupted the normal relationships between user costs, rents, and house prices—not that the MID no longer affects house prices. The current turbulence in housing markets simply makes it extremely difficult to predict the effects of changes in the MID.

“Post recession”? Excuse me while I laugh. I do agree that the MID is no longer a huge factor. It’s our school funding system that’s the real problem. People pay highly inflated prices for housing simply to get their kids in the “right” school district. Well, let me remind you that my ex-husband and I made a counter-intuitive move into a declining neighborhood with a lower-ranked school district. (We got a four-bedroom, three-bath house right outside the city for $35,000 and more than doubled the selling price ten years later.) But we knew we wanted a district with a strong art program, and the local elementary school was a computer magnet.

As I’ve mentioned before, my kids did well. Teachers in a marginal district are eager to have some bright kids, and mine got a lot of attention. One was in the gifted program, the other one missed by a few IQ points. (Even though he was just as smart, just harder to test.) But the problems getting the right remedial help for my oldest weren’t any different from the stories I heard from friends in the exclusive districts.

My youngest, who didn’t have the learning disabilities of my oldest, ended up getting $250,000 in academic scholarship offers, including a full ride at University of Maryland. (He didn’t take it, much to my chagrin). That was a lot of money back then, and he was accepted at all but two of the schools he applied. (NYU and Cooper Union, which is harder to get into than Harvard.)

The point I want to make is, you don’t need to buy your kid’s way into a better life with the right school. I’ve seen so many people beggar themselves by buying expensive homes they can’t afford. I’m still convinced that parents and the home environment are the most important factors in a child’s learning. Are there plenty of books around? Do you read to your child? Does the family play word games? Do you take them to museums and libraries? Do you talk to them about interesting things? Do you show them how to take things apart, or how to make things?

And besides, college admissions staff look for how well your child did for his/her circumstances. If everyone in her school had parents who paid for test prep and tutors, it’s hard to stand out. A kid in a middling school who took all the AP classes and sought out additional resources is much more likely to be admitted.