Ever wonder why there is not enough affordable housing in functional locations? (At S/PI we call this housing “affordable and accessible.”) For an important part of the answer look no farther that the federal subsidy for the very rich.

According to the bipartisan Joint Committee on Taxation the federal direct subsidy to homeowners is now $116 billion per year. That is up from the $100 billion that we estimated at the time The Shape of the Future was completed. We noted in 2000 that the vast majority of the subsidy goes to those at the top of the economic food chain.

There has been no change in the last half-decade. The top ½ of 1 percent of those filing for federal housing subsidy receive 22% of the benefit. At the bottom, 10% of the tax payers get only 4% of the benefit. Those are the ones that need help. So do most of the 30% of the households who do not own a house and so do not qualify for any meaningful subsidy.

According to columnist Kenneth R. Harney, the current administration has taken these subsides “off the table” for code writers who are trying to “streamline” of the IRS code. The 2006 “more-money-for-Iraq” budget removes those wasteful subsides of the less well to do such as the dismantled “community” programs.

Like the indirect subsidies from Fannie Mae, Freddie Mac and others, the direct tax subsidies on shelter go, by-in-large, to support houses that are the wrong size and in the wrong location. (“Affordable But No Bargain,” 15 June 2001 and “The Housing Dilemma,” 14 July 2003 at )

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  1. Jim Bacon Avatar

    Question One: Does the mortgage deduction apply to second homes and vacation homes? I can’t imagine anyone mounting a serious defense of subsidies for vacation homes.

    Question Two: Is there any practical way to limit the deduction to, say, $200,000? It’s one thing for federal housing policy to encourage home ownership. It’s another thing for federal housing policy to encourage McMansion ownership.

  2. Canadian government announces
    more details of new deal for cities
    By Nick Swift, Deputy Editor
    Official bodies at all levels of government throughout Canada have welcomed the explanation in February 2005 by John Godfrey, Minister of Infrastructure and Communities, of many of the details of Prime Minister Paul Martin’s government’s ‘New Deal for Cities and Communities’. In particular he revealed the formula by which the federal government will allocate federal gas (petrol) tax revenues toward maintenance and development of municipal infrastructures.

    In May 2004 Mr. Martin expanded on commitments made in that year’s Budget by announcing plans to give municipalities a portion of the gas (petrol) tax with up to CAN$2 billion a year, and the total rebate to cities of the Goods and Services Tax (GST), expected to amount to about $7 billion over a decade, as well as accelerating disbursement of the Municipal Rural Infrastructure Fund over five years instead of the 10 that had been proposed.

    Environmental dimensions were then considered important, with Mr. Martin emphasizing in an address to the Federation of Canadian Municipalities (FCM) that “environmental sustainability” was one of “three pillars” of the New Deal, the others being adequate housing and infrastructure, and “other” funding. Mr. Godfrey has more recently confirmed that meeting Kyoto Protocol targets for limiting greenhouse gas emissions by large city transportation systems was an important factor in the design of the New Deal.

    Less satisfied were those who viewed as inadequate the programme for implementing the transmission of the gas (petrol) tax funds, with no commitment for it to reach the five cents per litre level until 2010, and an absence of details on how it would filter through to the municipal level. Mayor David Miller of Toronto was one of them, and minority federal New Democratic Party leader Jack Layton made a more generous offer. Mr. Miller has also expressed disagreement with the idea that Toronto, by far the largest city in Canada, should be expected to interact with the federal government solely through the Association of Municipalities of Ontario (AMO). February’s announcement appears to leave the gas tax escalation plan much as it was.

    Infrastructure Canada, however, which, “within the Government of Canada, leads on national infrastructure initiatives including research, policies and programs”, and “works with other levels of government, First Nations communities, as well as the private sector, to identify the regional and local development priorities, and to evaluate proposals and finance specific projects, through several funding programs”, is explicit that “since both rural and urban communities are vital to the economic, social, environmental and cultural viability of the country, we must address the very pressing needs of our large cities as well as those of smaller communities”.

    The Infrastructure and Communities portfolio includes four Crown Corporations that report to Parliament through Mr. Godfrey. They work with “key partners – in the federal government, other orders of government, universities, research institutes, the private sector and other experts – to build knowledge about sustainable communities and infrastructure issues; to connect researchers in Canada; and to communicate knowledge about sustainable communities and infrastructure in order to help decision-makers in communities, provinces and territories across Canada, and internationally”.

    Beginning in January 2004, Mr. Godfrey travelled across Canada, visiting every province and meeting municipal leaders, including at least 80 mayors and councillors. At the same time, there has been “regular consultation with provinces, territories, municipalities and stakeholders on the shape, direction and management of Canada’s multi-billion dollar infrastructure program”. Mr. Godfrey’s efforts focused on “improving collaboration between all orders of government and private-sector stakeholders involved in municipal affairs”.

    Also unchanged, in addition to the program that will see a portion of the gas tax or an equivalent amount going to municipalities for infrastructure in such a way that only in the last and fifth year will they receive the remaining $2 billion of a total $5 billion, is the per capita criterion to be used in determining the allocation of funds, with the much less populated areas of Nunavut, the Northwest Territories, the Yukon and Prince Edward Island receiving targeted allocations. “A number of different approaches were put forward for allocating the gas tax among provinces and territories; we chose a balanced approach that is comparable to that recommended by the Federation of Canadian Municipalities and which will benefit all cities and communities,” said Mr. Godfrey. He also said that the government’s commitments in areas including health care are the reason for the delayed escalation of disbursement of funds.

    Public transit and water and wastewater systems will be among the environmentally sustainable infrastructures benefiting from the gas tax funding, as will be capacity building, rehabilitation of roads and bridges, solid waste management, and community energy systems.

    Ontario will receive $1865.5 million over five years, $746.2 of it in the fifth; Quebec, $1151.0 million and $460.4 million, respectively; and British Columbia, $635.6 and $254.2 million.

    Positions with regard to the New Deal have already been worked out by some provinces and territories. Roger Anderson, President of the AMO, said, “By adopting an allocation formula for provinces and territories based on population, the federal government has opted for equity and fairness over any particular regional or local interest… Coupled with last year’s full GST rebate for municipalities and the announcement of the Canada-Ontario Rural Municipal Infrastructure Program in November, the federal New Deal is moving forward”. The next stop for Ontario, he said, is three-way discussions between Canada, Ontario, and Ontario’s municipal governments to develop an allocation formula that works.

    Ann MacLean, President of the FCM, said, “The Federation of Canadian Municipalities and the municipal sector applaud Prime Minister Martin and Minister Godfrey for having listened to our concerns and for having delivered a plan to address them… Clearly, the Government has delivered on its commitment and has taken a critical step in the evolution of a New Deal for Cities and Communities”.

    Ontario Municipal Affairs and Housing Minister John Gerretsen welcomed the New Deal details by repeating his government’s intention to work toward giving Ontario municipalities “a seat at the table”.

  3. E M Risse Avatar


    I should never try to answer questions on line. Here is a better response to your two questions:

    The answer to your second question: The upper limit is $1.1 million for the loan value for which mortgage credit can be taken. As I understand it the house value can be any amount. The lower limit of income level for the “highest bracket” which gets 22% of the benefit is $200,000. That means of those who file taxes the very rich is a very small percentage of the population but a large percentage of those who make political contributions.

    As to second homes: There has been some back and forth about this and I am not sure if one can or cannot deduct second homes. I believe the answer is “cannot.” But how about switching “primary residence” to the place in Florida or Montana? It is very clear that millions have refinanced their primary home and used the money to pay off the second home, credit card and other debt. This lowers the interest rate and then one can write of the interest.

    The post by “Scott” is interesting but requires translation from Canada Speak to United States speak and an understanding of the functional components of human settlement patterns.


  4. Anonymous Avatar

    Home ownership has long been shown to be the fastest path to wealth. If the government subsidy creates more wealth than it costs, then it is worthwhile.

    There is plenty of affordable housing in functional locations, if you are bright, educated, and trained enough to get one of the high caliber jobs in what you call functional locations, then you can probably afford to live there, and those that choose to do so will.

    Home ownership in such places will always be more expensive, because density raises costs. The question is how do you choose to live? Some people are perfectly happy with a flower pot garden on a patio. But there isn’t any evidence or reason to believe that removing the “housing subsidy” will make less expensive housing available.

    When low wage people can’t afford to live in what you think are functional places, they are no longer functional. Those places will respond to this stress by raising wages for workers they need until those locations are no longer cost competitive and people move out.

    Houses that you think are too big and in the wrong location sit other people perfectly. There a quite a lot of people living in places like Big Piney, Wyoming. They will take it unkindly if you try to tell them how and where to live

    Metro is a direct subsidy to landowners in Ballston. Excessive land use restrictions in the countryside are a subsidy to those who wish to own large tracts of land (the ultra-wealthy) AND to landowners in Ballston. Take those subsidies away and then see how functional Ballston is. Take those subsidies away and would-be big landowners would have to compete with the masses to own land – at its fair market value. I’m all in favor of free markets: if someone wantws to own large tracts of vacant land, he should be able to buy a hundred house lots and have it.

    If you want to see some real land speculation, just announce a subway stop.

    For a long time it was impossible to get out of a house that was the wrong size or location because the government would then tax you to death on your ill-gotten gains. Now that you can get you money out of your home without going to the poorhouse we may eventually see some better decisions being made, but that is likely to take a very long time.

    In the meantime a handful of interchanges could make what we have a lot more functional than it is.

    In the meantime housing is virtually the only thing that kept the economy going during the recent slowdown. How much money did your retirement fund make off of housing?

    Ray Hyde
    Delaplane, VA

  5. E M Risse Avatar

    Having reviewed several of Mr. Hyde’s Commentaries as well as e-mails he has sent S/PI directly and letters he has written to community news papers it is clear that there are many points upon which he and S/PI agree. It is also clear that if the time were taken to differentiate facts from impressions and assumptions that most of the remaining differences would disappear.

    What would be left are personal preferences. In a democracy with a market economy those preferences are sorted out by the market and at the voting booth. From what we have been able to determine of Mr. Hyde’s preferences they are not those most valued in the market. That is fine so long as the true costs are equitably allocated and Mr. Hyde is willing to pay the full cost of his locational choices.

    Mr. Hyde’s lengthy expositions are laced with Business-as-Usual excuses, wild non sequiturs and demonstrations of profound geographical illiteracy. This makes it difficult to respond intelligently and sort out fact from myth and fiction. Here are three examples from the first and third paragraphs of his nine paragraph posting on AFFORDABLE AND ACCESSIBLE HOUSING:

    “Home ownership has long been shown to be the fastest path to wealth.” This is true only for the lower and middle rungs of the economic ladder. John D. Rockefeller, Howard Hughes and Bill Gates did not make their money flipping residential real estate. The posting to which Mr. Hyde responded was about how the current federal subsidy mades John D. Rockefeller VI, Bill and Milinda and the 17,000 AOL millionaires even richer by subsidizing their mortgages.

    “If the government subsidy creates more wealth than it costs, then it is worthwhile.” There is no evidence that current housing subsidies create long term wealth/value in proportion to the total cost to the public. These programs directly subsidize debt, not wealth creation. More important, these subsidies are a major contributor to dysfunctional settlement patterns. The point of the posting to which Mr. Hyde responded is that government subsidy best creates more wealth for those who are already rich.

    “Home ownership in such places will always be more expensive, because density raises costs.” Economics 1A demonstrates that the value of a house is based on what the market is willing to pay, not the cost to build. A housing unit in close proximity to jobs/services/recreation/amenity (aka, in a functional location) is valued higher than the same unit in a less desirable location regardless of construction cost. The “cost of housing construction and high land costs are the reason quality housing is more expensive” are favorite excuses raised by those who make more short-term profit by building the wrong size houses in the wrong location and selling them to urban residents in New Urban Regions. In a market economy the way to lower the price of quality housing is to build more or it, not subsidize bad housing. This is not easy for a number of reasons we have spelled out in other contexts but it is the only fair, market driven way to do it. See “The Housing Dilemma,” 14 July 2003 and Affordable, But No Bargain,” 15 June 2001. Also see “Wild Abandonment” 8 Sept 2003, “Scatteration,” 25 September 2003, “Where the Jobs Are” 24 May 2003, “The Myths that Blind Us,” 20 October 2003, “Five Critical Realities That Shape the Future” 15 December 2003 and other columns on market preferences of spacial distribution and the outline of Property Dynamics by Prof. Joseph Freeman in “Rain Dance” 4 January 2005.


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