The Fragile State of Home Buying
by Tony Chavira
(fragile home models created over 34 years using toothpicks from the artist Scott Weaver, with more at Accidental Mysteries)
Amazing article in the National Review, entitled "We Can't Afford This House." Here's a taste to show you what I mean (emphases are all mine):
Without substantial down payments and conservative amortization schedules, the entire proposition of home-ownership as a social good is turned on its head. Think of a homeowner with a zero-down, negative-amortization mortgage: The balance would equal at least 100 percent of the value of the house at origination and would steadily grow, putting him ever deeper in debt unless the market value of the house grew at an even faster rate. Rather than being a source of wealth, the mortgage would actually reduce the net worth of this homeowner below what it would have been had he rented.
[...] Under the status quo, 80 percent of the benefits from the mortgage-interest deduction go to the top 20 percent of households in terms of income. The deduction helps only those taxpayers who itemize deductions on their tax returns, which is much more common among high earners, and the value of the subsidy rises as one moves up the tax brackets. Further, as Joseph Gyourko and Todd Sinai of the University of Pennsylvania have documented, the subsidies are unevenly concentrated, with net benefits going to only 20 percent of states and 10 percent of metropolitan areas. Not surprisingly, over 75 percent of these benefits go to three high-cost metropolitan areas: New York City–Northern New Jersey, Los Angeles–Riverside–Orange County, and San Francisco–Oakland–San Jose.
I'm clearly a huge fan of an increase in smartly-planned urban density, but we all know that there's uneven income distribution. I mean, check out this chart from University of Arizona professor Lane Kenworthy if you need any more convincing:
Aside from this though, the article makes a great argument for revamping our existing tax structure to find a real way to afford purchasing homes. It's definitely worth the read if you're in one of those three major metropolitan areas and really want to buy a place.
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