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Homeownership Subsidy Debate at NRO

Over at the Corner, David Freddoso touts a series of tax subsidies the House GOP is proposing to encouraging further investing in the housing sector, including some substantial subsidies aimed explicitly at speculators. To which Jerry Taylor sensibly replies also on the Corner:

I know that there is plenty of political capital to be gained by providing handouts to middle-class homeowners and little political capital in removing the same. But a political party that ostensibly stands for free markets and limited government should not be in the business of underwriting or subsidizing private investments in anything unless we can find some plausible market failure in need of correction (and perhaps not even then).

Hence, the necessary question: Is there any market failure that would result in sub-optimal investment in private housing? Not that I am aware of.

I would, if anything, take this in the other direction. Preferential subsidies for investment in housing lead people to, on average, consume more housing and less stuff-that-isn’t-housing than they otherwise would. In other words, bigger houses instead of fancier clothes. This, in turn, has a substantial negative impact on the economy. Larger houses cost more to heat and cool, and larger houses lead to longer commutes. We shouldn’t stop people from buying big houses if that’s what they want to do, but it’s quite harmful to be specifically encouraging them to invest their resources in this way quite independently from the financial crisis. Reduce the tax-side subsidies to homeownership and we’d have somewhat faster economic growth, somewhat more public revenue, and a somewhat cleaner environment.

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