[MCN] Why homebuilders aren't building affordable homes

[Lance Olsen]

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"A working paper published earlier this year <http://www.nber.org/papers/w23600> by economists at MIT, Princeton and the University of Copenhagen concluded mortgage interest deduction induces homeowners to “buy larger and more expensive houses.”
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Excerpt: Owners of expensive homes would still be able to take the deduction on their first $500,000 of mortgage debt. If you have a $550,000 mortgage, for instance, you'd be able to deduct the interest on all but the last $50,000 of principal owed.

That hasn't stopped realtors and home builders' groups from slamming the proposal, calling it an unacceptable tax hike on middle class families <https://www.washingtonpost.com/news/where-we-live/wp/2017/11/02/how-the-gop-mortgage-interest-deduction-plan-would-hurt-dcs-middle-class/?utm_term=.c6417433866e> living in expensive areas, like D.C. and San Francisco. “The nation's 1.3 million Realtors cannot support a bill that takes homeownership off the table for millions of middle-class families,” said William Brown, president of the National Association of Realtors, in a statement <https://www.nar.realtor/newsroom/house-tax-bill-delivers-tax-hike-on-homeowners>.

Similarly, Granger MacDonald of the National Association of Home Builders said  <https://www.nahb.org/en/news-and-publications/press-releases/2017/11/republican-tax-reform-plan-slams-middle-class.aspx>“the bill eviscerates existing housing tax benefits by drastically reducing the number of home owners who can take advantage of mortgage interest and property tax incentives... capping mortgage interest at $500,000 for new home purchases means that home buyers in expensive markets will effectively lose this housing tax benefit moving forward.”

The rhetoric about “middle-class families” is largely at odds with the reality of who actually owns half-million dollar homes in the U.S.

Nationwide, only about 6 percent of new mortgages are valued at over $500,000, according to a report by the United for Homes campaign <http://www.unitedforhomes.org/wp-content/uploads/2017/07/MID-Report_0817.pdf>, a group that advocates for reforming the MID and making housing more affordable for low-income families. That figure is based on an analysis of mortgages issued in the United States between 2013 and 2015. 

If your mortgage is over $500,000, in other words, you're already in the top tier of American homeowners.

If half-million dollar homes account for a small portion of the mortgage market, in other words, they affect an even smaller share of the total U.S. population. That share of the population is likely to be fairly well-off: if you can afford a down payment and monthly payments on an $600,000 house, for instance, you're not exactly struggling financially.

If you buy a $600,000 home, you're in the 25 percent income tax bracket and you have a 30-year mortgage at a 4.5 percent interest rate <http://www.bankrate.com/calculators/mortgages/loan-tax-deduction-calculator.aspx>, that means you'd be paying about $1,700 more annually under the GOP proposal — a bummer, to be sure, but not exactly a bank-breaking figure for most families that can afford to pay over $3,000 a month on principal and interest alone.
Further compounding the issue, the mortgage interest deduction is one of the reasons home prices across the country are so expensive to begin with. A working paper published earlier this year <http://www.nber.org/papers/w23600> by economists at MIT, Princeton and the University of Copenhagen concluded mortgage interest deduction induces homeowners to “buy larger and more expensive houses.”
That paper also found the MID has “a precisely estimated zero effect” on the rate of homeownership — people who can afford to buy a house will do so regardless of whether a mortgage interest deduction is in place.

https://www.washingtonpost.com/news/wonk/wp/2017/11/03/how-many-families-actually-own-half-million-dollar-homes/?hpid=hp_hp-cards_hp-card-business2%3Ahomepage%2Fcard&utm_term=.ca637d5b2757 <https://www.washingtonpost.com/news/wonk/wp/2017/11/03/how-many-families-actually-own-half-million-dollar-homes/?hpid=hp_hp-cards_hp-card-business2:homepage/card&utm_term=.ca637d5b2757>


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"Water vapor strongly influences atmospheric dynamics and the hydrologic cycle through latent heat transport and diabatic heating. Water vapor is also the most abundant greenhouse gas. 
As the equilibrium vapor pressure of water vapor increases rapidly with temperature, warming (or cooling) induced by a climate forcing will be amplified through water vapor feedback [e.g., 
Soden et al., 2002]. The strength of this feedback is a key determinant of the planet’s equilibrium climate sensitivity."

Mark C. Serreze, Andrew P. Barrett, and Julienne Stroeve. Recent changes in tropospheric water vapor over the Arctic as assessed from radiosondes and atmospheric reanalyses. 
JOURNAL OF GEOPHYSICAL RESEARCH, VOL. 117, D10104, doi:10.1029/2011JD017421, 2012

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