Federal housing benefits are disproportionately enriching wealthy households, according to a study by Apartment List.
The San Francisco-based company, which runs an apartment listings search engine, analyzed Internal Revenue Service and Housing and Urban Development data. It found a popular tax break, the mortgage interest deduction (MID), cost the federal government $71 billion in 2015, more than double the amount spent on Section 8 funding for low-income renters ($29.9 billion).
Both programs provide housing assistance, but the MID primarily benefits people who are well-off enough to purchase a home and who can profit from the wealth-building aspect of homeownership. Section 8 helps low-income renters such as disadvantaged families, the elderly and disabled. These renters pay the difference between the rent and the subsidy.
“It really just shows how poor of a job we are doing of allocating these benefits to people who need them,” said Chris Salviati, a housing economist at Apartment List and author of the study.
More than half of high-income households claim MID, but only 11 percent of low-income households receive help with their housing costs. Low-income households are those earning less than 80 percent of the median income in the area where they live. Households earning above 120 percent of area median income are considered high income.
Because their housing situation is less certain, renters are more likely to need assistance. According to census data, 62 percent of all renter households nationwide and 93 percent of low-income renter households are cost burdened (meaning they spend more than 30 percent of their income on housing).
Yet, federal housing benefits flow more freely to homeowners. High-income earners make up only 11 percent of cost-burdened households but receive 60 percent of federal housing assistance. Only 34 percent of total federal housing assistance goes to low-income households.
The MID is a classic case of how the rich get richer, where the more wealth you have the bigger your benefit. High-income households tend to buy expensive homes and are more likely to own second homes so they tend to have a greater amount of mortgage interest to deduct. They also have a have a higher marginal tax rate and receive a greater benefit from the deduction.
When breaking down the amount of federal government housing assistance received by income level, the differences are stark. Nationwide, high-income households received on average $1,549 in 2015 while low-income households received on average $416.
In the D.C. metro region, the difference between high- and low-income earners is even more pronounced. High-income households received on average $3,290 in housing assistance, while low-income households received $580.
When analyzing it by state, high-income earners in the District received $2,634, while low-income earners received $1,659. High-income earners in Maryland received $2,624, while low-income earners received $565. High-income earners in Virginia received $934, while low-income earners received $376.
Republican efforts to reform the tax code have thrust the mortgage interest deduction into the news recently. MID allows homeowners who itemize their tax returns to deduct the interest paid on their mortgage from their taxable income.
Because the GOP tax proposal nearly doubles the standard deduction for a married couple, it is likely fewer homeowners would claim the deduction. Groups such as the National Association of Realtors and the National Association of Home Builders are vowing to use their considerable lobbying power to save the benefit. They insist the housing market would suffer without the MID.
However, a study released this past summer by the National Bureau of Economic Research debunked the notion that tax breaks encourage homeownership. Gary Cohn, President Trump’s senior economic adviser, recently echoed those findings when he said, “People don’t buy homes because of the mortgage deduction.”
The Apartment List report offers suggestions for ways to revise the MID to more evenly distribute housing assistance. It recommends converting the MID to a tax credit, which would allow more low- and middle-income homeowners to take advantage of the benefit. It also suggests lowering the maximum amount that can be deducted, which would reduce the benefit to high-income households.
“The argument behind [MID] is that it promotes homeownership,” Salviati said. “Research shows that’s probably not the case. That fact coupled with how regressive it is we need to take a closer look at it, reform the MID to make it more equitable. Take those savings and spend them on other housing-related programs like Section 8.”
While the MID is part of the tax reform proposals, Salviati would prefer if lawmakers thought more holistically about how federal housing assistance is dispersed. Rather than make it all about MID, he suggests they also consider ways to help low-income renters.
“That’s something we wanted to make sure we emphasized,” Salviati said. “There hasn’t been necessarily any serious proposal to do that.”