The Mortgage Interest Deduction and its Impact on Homeownership Decisions

Spatial Economics Research Centre (SERC), London School of Economics and Political Science

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Date Published 2010
Version Current draft: August 12, 2010
Primary Author Christian A. L. Hilber and Tracy M. Turner
Other Authors
Theme Housing Finance Subsidies


This paper examines the impact of the combined U.S. state and federal mortgage interest deduction (MID) on homeownership attainment, using data from 1984 to 2007 and exploiting variation in the subsidy across states, over time and due to inter-state moves. We test whether capitalization of the MID into house prices offsets the positive effect on homeownership. We find that the MID only boosts homeownership attainment of higher income households in less tightly regulated housing markets. In more restrictive places – typically larger coastal cities – an adverse effect exists. The MID is an ineffective policy to promote homeownership and improve social welfare

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