President Barack Obama’s State of the Union address provided a list of things that “will make a meaningful difference in the lives of millions of families.”
Items included on the list were child care, equal pay, higher minimum wages and lower mortgage premiums.
Obama reported that the Federal Housing Administration will reduce its mortgage insurance premiums by 0.5 percent and that this reduction should make it easier for Americans to buy homes.
Obama’s address to the nation, like most addresses in recent history, essentially ignores renters, who receive no benefits from current policies such as the mortgage interest deduction or housing tax deductions.
Most taxpayers, including Texans, do not itemize their tax deductions. Data from the Joint Committee on Taxation and other tax policy groups consistently show that only one-third of taxpayers itemize, and that only 25 percent claim the mortgage interest deduction.
Although providing economic relief to middle-class households is, of course, a good thing, the speech never mentions the importance of helping folks find affordable housing regardless of whether it’s rented or owned. Simply put, renters are largely invisible in federal housing initiatives.
Americans who are fortunate enough to have high-paying jobs can save for a down payment, qualify for low-cost mortgage loans and reasonably assume they will be able to repay their mortgage loans.
For them, homeownership remains a wealth-building device, especially since the mortgage interest deduction subsidizes their housing costs by letting them deduct their mortgage interest.
Most middle- and lower-income workers are not so fortunate.
Although parts of Obama’s middle-class economics plan should help them “feel more secure in a world of constant change,” this housing initiative fails to respond to the primary reasons they are not buying homes.
Americans are not buying homes because they cannot afford to buy homes. Wages for all but the highest earners have been stagnant for years.
Housing affordability is particularly acute for Texas workers who earn the federal minimum wage, even though Texas is generally a low tax state. A recent report placed Texas on the “Terrible 10” list of states where the bottom 20 percent of wage earners pay up to seven times as much of their income in state and local taxes as the ultra-wealthy pays.
Middle-income households do not need to hear another speech that proposes relief for homeowners. They need a speech that announces a plan to help improve their housing security by providing more affordable housing, whether rented or owned.
Policymakers need to develop housing policies that make the middle-class visible. In particular, we need to reform the mortgage interest deduction because it disproportionately benefits higher-income homeowners.
Homeowners who do not itemize and instead take the standard deduction on their taxes do not benefit from the mortgage interest deduction. Renters don’t either.
Texans, in particular, derive relatively few benefits from the mortgage interest deduction because Texas does not have a state income tax, which makes Texas taxpayers more likely to take the standard deduction. In fact, a 2014 report that analyzed the geographic distribution of the mortgage interest deduction ranked Texas as one of the 10 states whose residents are least likely to claim it.
A middle-class economics housing policy should also consider ways to develop housing tax deductions or credit for middle-class renters, or tax subsidies that encourage Americans to own homes communally, jointly, or cooperatively.
More inclusive housing policies that are designed to help middle- and lower-income Americans might also help resolve some of the housing challenges owners and renters of properties continue to face.
Finally, we need housing policies that help Americans save for a security deposit for a rental home, just as state and federal programs provide down payment assistance to help renters buy homes.
For instance, because the Austin area has a higher percentage (55 percent) of renter households than the U.S. average (35 percent), the affordability concerns of more than half of the residents are essentially disregarded in current federal housing discussions.
We have not achieved the goal that congress set forth 50 years ago when declaring national housing policies. And if housing policies continue to ignore why middle-class Americans cannot and will not buy homes, we will never achieve those goals.
A. Mechele Dickerson is a professor of law at The University of Texas at Austin and is the author of “Homeownership and America’s Financial Underclass: Flawed Premises, Broken Promises, New Prescriptions.”
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— Texas Perspectives (@TexPerspectives) January 23, 2015