From Georgia State University and the department of “let’s just all live in uniform state sponsored mud huts“, comes this latest inanity, blaming carbon emissions on your ability to get a tax deduction for the American Dream of owning your own home. I wonder what sort of home Kyle Mangum lives in?
US housing policies increase carbon output, Georgia State University research finds
Land use policies and preferential tax treatment for housing – in the form of federal income tax deductions for mortgage interest and property taxes – have increased carbon emissions in the United States by about 2.7 percent, almost 6 percent annually in new home construction, according to a new Georgia State University study.
Economist Kyle Mangum, an assistant professor in the Andrew Young School of Policy Studies, measures the effect of various housing policies on energy use and carbon output in “The Global Effects of Housing Policy,” which he recently presented at the IEB III Workshop on Urban Economics in Barcelona.
Mangum’s empirical study uses data on local construction activity, housing consumption and density, labor and materials cost, and local populations and incomes for the nation’s 50 largest metro areas, ranking them by annual carbon output per person.
Policies that affect the amount of housing consumed per capita and housing density are the two major drivers of carbon savings, he finds.
“Larger homes consume more energy,” Mangum said. “Lower density home sites increase gasoline use. Also, many ‘easy-building’ Sun Belt regions that have attracted more new home building are higher energy-use locations.”
His research suggests removing federal tax subsidies for housing and updating land use regulations to encourage higher density in higher energy-use locations would lower the country’s overall energy use, reducing its carbon emissions.
“I find that the federal tax treatment of housing has added a nontrivial amount of carbon output by increasing housing consumption,” he said. “Also, imposing stricter land use regulations in high carbon output cities would decrease the nation’s overall amount of carbon output by approximately 2.2 percent – about 4.5 percent in new construction – primarily by decreasing the amount of house used per person and then by encouraging movement to more efficient low-carbon cities.”
Mangum also finds:
High carbon cities contribute about twice as much per person as the low carbon cities;
Many quickly growing cities are above the national average in energy consumption;
Cities with more housing area per person use more electricity per person.
Download a copy of Mangum’s working paper at http://www.ieb.ub.edu/files/PapersWSUE2014/Mangum.pdf.
“Tax dodge”? Have a look around in Europe, where countries like Italy and Spain have created enormous national debt, and then gone after the citizens for “tax evasion.” Our current tax laws are so complex that any one can make a mistake. Current IRS abuses and unnavigable regulations are an excellent argument for instituting a flat tax.
Besides, I object to the use of the term “subsidy” for taxes not collected, when so many federal subsidies involve actual transfer of funds to a person or enterprise. Real subsidized housing is a system which uses funds from the government to pay the rent either fully or partially for public housing. Subsidized food purchases are also expanding in the form of food cards which allow people to buy food at the store with money from the federal and state governments, a program expanded greatly in the last Farm Bill. The use of these cards is up to 1 in 5 homes. That is subsidized housing and food, not home owners who are also paying property taxes for local infrastructure, etc.
dbstealey says:
June 17, 2014 at 11:25 am
“There is a $250,000 federal credit on net appreciated value if a house is held for 2 years or more. It is $500,000 tax-free for a married couple. A lot of folks have sold, and bought up every couple of years to take advantage of that tax free profit.”
Let’ s be clear that you are talking abut capital gains tax, not income tax. And it must be your primary residence.
Here is additional information on limits of the home mortgage interest deduction for those who are not familiar with it,
http://taxes.about.com/od/deductionscredits/a/MortgageDeduct_2.htm
Wow, lots of good comments. I especially like tteclod’s (June 17 @ur momisugly 4:28am). Many potential problems with this kind of policy driver; I can only imagine Paul Erlich salivating over the following possibilities:
* mandates on where you may live and work, and thus income potential, and
* how many children may be in a family in “higher energy use” areas.
It would be interesting to see Mangum’s idea of a practical solution to the aging of homeowner families over time. My wife and I have lived in two homes in our 26 years of marriage, in two different metropolitan areas. Soon our home that we have lived in for about 20 years will no longer host a full-time family of four. Should we move? Where?
As well, I have to wonder what solutions he might proffer for older homes of larger size in older communities: would families with less than two persons per bedroom be forced to subdivide or open their doors to outsiders?
Also, in the current era, we’ve seen numerous homes in our suburban area tossed back to the bank. During that period of time (up to two years) no one lives there, further depressing the housing density.
Oh, but there are serious problems with this…
@D.J. Hawkins and dbstealy. Thanks for the info. Looks like the mortgage interest deduction is pretty significant, especially for higher leveraged borrowers AND there is also a capital gains deduction. In Canada there is no capital gains tax on the principle residence and no mortgage interest deduction.
The purchase price is higher because of the deduction. You pay more up-front. When you subsidize something, the prices goes up. See Economics in One Lesson.
“The findings offer two important lessons for the tax expenditure debate. First, although completely eliminating the tax preferences for owner-occupied housing would reduce home prices substantially, curbing those preferences probably would not. Second, reform that limits deductions for mortgage interest while subsidizing the cost of housing transactions could actually raise home prices. – See more at: http://taxvox.taxpolicycenter.org/2013/06/05/what-changes-in-the-mortgage-deduction-would-mean-for-home-prices/#sthash.pWZNjJGh.dpuf“
kadaka says:
They point to the big suburb cities near NYC, LA, DC, San Fran and Seattle.
Those areas get in the news. But that is right, most of the country misses out on fast appreciation. And there are reasons for high prices in certain areas:
San Francisco is only 7×7 miles, and completely built up. So there is very limited supply, and strong demand. Silicon Valley [south of SF] is mostly in a valley that is likewise built up. Both areas have lots of high paying jobs, and thousands of internet and startup millionaires. There are more every year.
When Facebook went public it created around a thousand millionaires, and probably every one of them went out and bought an expensive house. Zuckerberg bought his entire street out, for privacy — in Palo Alto, a very rich city where every house Zuckerburg bought was worth well over $1 million. Those areas listed all have very strong upward pressure on houses.
So long as the Fed keeps interest rates artificially low, I expect housing to do well. But if rates go just from 4% to 6%, it will knock lots of buyers out of the market. Prices will drop in many areas. But don’t expect that to happen soon. The Fed is still printing tens of billions of dollars a month. The only reason that doesn’t trigger inflation is because mosty countries are doing even worse than the U.S. That’s why their better off citizens are buying in America — another source of demand.
Even at 6%, interest rates would still be historically very low. I was a real estate broker for many years, and I remember FHA interest rates at 17 ½%, and VA at 18 ½%. As rates dropped over the years all of the benefit accrued to the property owners, and none to the renters. It will be interesting to watch what happens if and when that cycle reverses.
@dbstealey
Late 70s, early 80s. I remember them as well (family has always been in real estate). And yes, 6% is pretty good. Of course the sub 3% that has been in effect for years now is even better for the homeowner. I got a 5 year ARM back in 2003. So when it started adjusting, it started adjusting DOWN. I am at the point where I can pay it off at any time, but since I am paying about 2.5%, I figure to ride it until the rates start to increase or I pay it all off (about 8 years).
@Tom in Florida says:
It’s even worse than we thought! This posting estimates the mortgage deduction raises the price of a home by not 5 per cent, not 10 per cent but 16 per cent! Yep, it costs 16% more to buy a home if this source is correct.
The problem with eliminating this deduction is there are vested interests in keeping it, especially those of us who recently purchased a home!
Is that a question or a statement?
In America, most people don’t think about things. They don’t think that the mortgage interest rate deduction goes to many people who could easily afford to purchase a home without the deduction. They don’t think about how silly it is to spend $1 in order to save 20 or 30 cents (whatever the tax rate may be). Some people do think it’s unfair that only home owners get that deduction, so they do things like force banks to loan money to people who can’t pay it back.
I wonder it it isnt more obvious to more people the embedded agenda. For instance, lets say the real goal is simply solving the “problem”. A suburbane or rural home could if you want can use various means to passively heat and or keep itself cool. In many areas the water a family needs might be enough simply from roof collection with a grey water system that lowers water usage for garden and or landscaping. If in this scenario we have electric vehicles from clean sources the suburban or rural person could have a very low impact lifestyle, if the same person happened to grow their own food, which they actually have space to choose to do.
So as I see it, if the real goal was simply solving an issue rather then forcing an agenda, the suggestion might have been more like get rid of this tax deduction, then use this money to give tax reduction to those people who build or retrofit homes to take care of various needs with less inputs or what have you. This would get us to the goal much faster if the goal was actually making society have less of a impact, rather then forcing us into cities which appears to be the drive.
“Larger homes consume more energy,” Mangum said. “Lower density home sites increase gasoline use.”
Stunning. Who would have thought it!
Where would we be without “experts”?
To be clearer, you can if you desire meet a families needs with much less of an impact if you have a bit of space and a single family home. Im not sure how you can do that in densely packed cities. If we are going to get all nazi, atleast have a shred of sanity and offer options. Especially when some options are far superior if the real goal is a low impact society.
more soylent green! says:
June 17, 2014 at 3:33 pm
“It’s even worse than we thought! This posting estimates the mortgage deduction raises the price of a home by not 5 per cent, not 10 per cent but 16 per cent! Yep, it costs 16% more to buy a home if this source is correct.”
Again, how does it do that in the real world? The posting is not real world.
Real Estate 101: buyers set the market price on housing! Sellers can only ask a price. It is simply supply and demand. Real estate is true free market at work. You build or buy a house at a cost, you sell it at a price that produces a profit or loss depending on current market conditions. . The net proceeds from the sale of the home are paid to the seller without regard to how the buyer pays for it. While a cash deal may entice the seller to take less money, it is because cash deals are much easier to close and that has a certain value to a seller. It has nothing to do with mortgage interest deductions
more soylent green! says:
June 17, 2014 at 3:39 pm
“In America, most people don’t think about things. They don’t think that the mortgage interest rate deduction goes to many people who could easily afford to purchase a home without the deduction. ”
I see where your misunderstanding is. The basis for determining whether a person can afford a house or not is based on one’s monthly income to expense ratio. It has nothing to do with a person’s annual federal income tax deductions. Banks do not care how much of a tax refund a person gets, that can be manipulated a hundred ways. Banks only want to know (1) is your monthly income sufficient to pay the mortgage and your other monthly obligations and (2) does your credit history show a willingness to pay your bills.
Now a slick seller may try to use the mortgage interest deduction to rationalize a higher price to a naive buyer but that is a horse of a different color.
A21…put everyone into as small a spot as you can
honestly, and its somewhat related to this, I would not mind seeing the mortgage deduction scrapped. as long as all other deductions (kids/business losses/damed gambling losses/etc) were also scrapped.
for everyone.
no matter what their income is.
Kyle Mangum of Georgia State University has found that “US housing policies increase carbon output…” Hence, tax deductions for home owners are partly responsible for higher carbon dioxide production in this country. This is another example of how the insane belief that carbon dioxide causes global warming is used to tell us how to arrange our private lives. For your information, Mangum, carbon dioxide does not cause of anthropogenic warming or any warming whatsoever. In case you haven’t noticed, there is absolutely no greenhouse warming today and there has been none for the last 17 years while carbon dioxide steadily increases. This greenhouse warming mania started when James Hansen announced in 1988 that he had proved the existence of the greenhouse effect. It turns out he lied about it. He was using a non-greenhouse warming that took place between 1910 and 1940 as part of an alleged hundred year run of greenhouse warming. That was wrong but nobody checked his work and he has been getting away with this for the last 26 years. As to the warming pause, all those big “experts” are looking everywhere for that “lost heat”, even in the ocean bottom. Their greenhouse theory of Arrhenius totally fails to explain it and should be thrown out. Its place is in the dust bin of history. The only theory that correctly explains the pause is the Miskolczi greenhouse theory. It works in the special situation where more than one greenhouse gas is actively absorbing IR, something the Arrhenius theory cannot do. The greenhouse gases in earth atmosphere that must be accounted for are carbon dioxide and water vapor. They form a joint optimum absorption window whose invariant optical thickness is 1.87. If you now add carbon dioxide to the atmosphere it will start to absorb, just as Arrhenius says. But this will increase the optical thickness, and as soon as this happens, water vapor will start to diminish, rain out, and the original optical thickness is restored. As a result, no warming takes place despite an increase of atmospheric carbon dioxide that just took place. This is the situation we have now – warming has ceased in spite of a constantly increasing atmospheric carbon dioxide. This happens to be how the laws of nature control absorption of radiation by the atmosphere. They have always done so and any reports of previous greenhouse warming are nothing more than misidentification of natural warming by eager-beaver “climate” scientists wishing to prove the existence of their magical greenhouse warming.
Skip to the real agenda, there are just too many people who want a mortgage. Mangum Logic: No people, no houses, no mortgage, no deduction, no carbon. Mr. Mangum may believe the ideal population of earth is 500 million……………………………………
I like my carbon in tetrahedral crystlline form. Usually people living in big mansions can afford lots of this.
Tom, no misunderstanding here. You don’t even seem to be talking about the same thing. I never mentioned affordability. I mentioned how the tax deduction raises the cost of housing (again, see Economics in One Lesson if you’re curious about how supply, demand and prices are affected by subsidies and other incentives (for what is a mortgage tax deduction if not an incentive?). I concede I make a quick argument, rather than a detailed one.
It’s basic economics. The incentives affect the supply and the demand. The deduction makes home ownership more desirable, increasing the demand. The home mortgage tax deduction, distorts the market.
Perhaps it’s the clumsy way I stated people who receive the deduction — sold as making home ownership more “affordable” — could afford to purchase a home without the deduction. As you noted, this has nothing to do with qualifying for a mortgage and you missed the point entirely. If you follow this site, you know that subsidies for green cars go to the well-to-do, that those incentives, deductions and credits are really just hidden payments to the car manufacturers, not to the purchaser. To be clear, only the better-off can use these deductions as they must be able to make the purchase in the first place. Because of our graduated income tax system, families with lower incomes get proportionally less of a deduction than somebody in a higher tax bracket.
The lowest federal tax bracket is 10%, the highest is 39.6%. A middle-class family is likely to be in the 15% bracket. Do the math from there.
Economics in One Lesson is available as a free PDF ebook: https://mises.org/books/economics_in_one_lesson_hazlitt.pdf
@more soylent green – I disagree. The deduction does not distort the market, the income tax code as written distorts the market. Initially the standard deduction was to cut out all income necessary for the individual and/or family to live on during the year. When it stopped being that, it distorted the market. The deduction merely is trying to bring the market back from distortion.
I’m all for getting rid of the interest deduction. There’s no reason for us to be subsidizing banks.
The distortions created by a debt financed economy are real. Are our priorities driven by priorities of the bankers? Who would waste their life’s energy buying a house 3 times the size needed if the bankers weren’t there with the easy financing. The same applies to vehicles. A huge part of the economy is gluttonous waste. Is this really what we should be doing with the planet’s limited resources? Carbon doesn’t matter till there isn’t enough carbon to burn.
There many good, sound, logical reasons for eliminating the home mortgage deduction, possibly replacing it with a credit instead. Reducing “carbon” just doesn’t happen to be one of them.
http://www.cbpp.org/cms/?fa=view&id=3948
more soylent green! says: June 18, 2014 at 8:43 am
“It’s basic economics. The incentives affect the supply and the demand. The deduction makes home ownership more desirable, increasing the demand. The home mortgage tax deduction, distorts the market. ”
Not so. The home mortgage interest deduction may appear to have a very tiny effect in a few specific cases but it’s influence on the housing market is completely swamped by many other factors. So in no way does it “distort” the market. Perhaps therein is my objection to your original statement. (Think of how they present CO2 as the driver of warming and how we object to that).
Pamela Gray:
The only way this whole shebang gets turned off is by reasoned majority rule in every branch of government cutting off the teat.
IOW, it will never happen.