I don’t know what year Felix’s statistics are from, but there are several factors that make it plausible, especially if the numbers are recent:

1. Mortgage interest payments decline over the life of the loan. My neighbors who have owned their houses for 15 years have lower loan balances than me becuase they took out smaller mortgages to begin with and they have paid down a hefty portion of the original balance.

2. Nearly 50% of households paid no federal income tax in 2009. A portion of these are homeowners (given the 65% homeownership rate), and many of them probably don’t need the mortgage deduction to reduce their tax bill to 0.

3. As far as I know, you only get the interest deduction if you pay your mortgage. With high delinquency rates in 2009, there could be a large number of homeowners not taking the deduction who would qualify if they were current on their mortgages.

To those commenters complaining that they bought their houses expecting the deduction and removing it would cause undue burden on them: no doubt that is why Felix suggests phasing the deduction out over time. This doesn’t eliminate the pain, but there is always pain on the part of those adapted to current policy when tax policies are changed. The article Felix linked does a reasonable job of explaining why the deduction isn’t good policy.

The areas are roughly similar with substantial constraints in entitlements and topography.

So what gives?

Which is value-neutral to society, since for every home seller there’s a buyer. Maybe this will benefit the huge universe of renters currently unable or unwilling to buy into the perpetual-tax-avoidance machine.

You seem to be saying that house prices are high because the tax subsidy, and without the subsidy no one would be able to afford these very high prices. Am I alone in finding this a bit peculiar?

Edward Glaeser has argued against the mortgage-interest expense deduction:

http://economix.blogs.nytimes.com/2009/0 2/24/killing-or-maiming-a-sacred-cow-hom e-mortgage-deductions/

And so has Roger Lowenstein:

http://www.nytimes.com/2006/03/05/magazi ne/305deduction.1.html

(1) Convert it to a 15% tax credit (thus those in the 25% tax bracket would still pay 10% tax on their mortgage interest).

(2) Remove the deduction from the Alternative Minimum Tax.

The former “solution” would reduce the complexity of tax filing, the latter would increase it. Bets on which Congress would prefer?

That’s just it, as of now a meaningful amount of value for a large number of homeowners is derived from income tax avoidance. People can afford those houses with the tax deduction and most certainly can’t w/o it. As some other commenters pointed out it doesn’t take much in the way of interest expense to have a benefit here to the homeowner. I think a change like this would cause the value of a large number of homes around the NYC region to absolutely crater.