Legislature doesn’t have to look far to find money to tackle the housing crisis
Tents and vehicles crowd the edges of Southeast Powell Boulevard in Portland on Sept. 9, 2022. (Fred Joe/Oregon Capital Chronicle)
Calling it the “number one issue throughout Oregon,” more than two dozen mayors recently wrote to the Oregon Legislature asking for $125 million in annual funding to address homelessness. “Cities cannot be left to solve this statewide crisis by ourselves,” the bipartisan group of mayors noted.
Although the mayors did not identify the source of funds, it’s obvious to anyone who understands how Oregon spends money on housing where the dollars can be found. A common sense reform of the state’s biggest housing program can yield the money needed to confront homelessness.
Oregon’s biggest housing program — the mortgage interest deduction — chews up about a billion dollars every budget period. It’s far-and-away the biggest expenditure on housing by the state, and most of that money is wasted. It’s wasted on subsidizing housing for those who do not need help: the state’s most well-off homeowners.
The mortgage interest deduction is a housing subsidy delivered through the tax system. To take advantage of it, you need to own a home with a mortgage and itemize your deductions on your tax returns. Only about one-third of Oregon taxpayers claim the deduction. Of course, not a single one of the beneficiaries of the subsidy is a renter, for whom housing costs weigh more heavily compared to homeowners.
A groundbreaking audit of the program by the Oregon Secretary of State earlier this year concluded that the mortgage interest deduction “is designed in a way that systematically benefits higher income” homeowners. The audit explained that the “roughly 18,000 taxpayers with incomes in the top 1%” — the richest Oregonians — “received more benefit from the MID than the 727,000 taxpayers in the bottom 40% combined.”
Just how absurd is Oregon’s biggest housing program? Consider this: The mortgage interest deduction does nothing to protect those families most at risk of falling into homelessness, or those who have lost that struggle. But it does give money to owners of vacation homes, as the program allows the deduction of interest paid on a second home.
While doing nothing to solve the state’s housing crisis, Oregon’s biggest housing subsidy worsens some of our state’s most deep-seated problems: the racial wealth gap and the underinvestment in rural communities.
From the theft of land belonging to Native peoples, to the denial of federally subsidized home mortgages to Black and other people of color during the New Deal era, to the subprime fiasco of the 2000s where banks preyed on Black and Latino communities, to many other policies and practices in between, racism has shaped the landscape of homeownership. Today, Black and Latino Oregonians are far less likely to own a home than Oregonians generally, and thus far less likely to benefit from the mortgage interest deduction.
Oregonians in rural areas also get the short end of the stick. As the Oregon Secretary of State’s audit shows, Oregonians living in urban counties are not only more likely to benefit from the mortgage interest deduction than Oregonians in rural counties, they also get a bigger subsidy on average.
For the huge sums the state spends on the mortgage interest deduction, you might think something good comes out of it, but you’d be wrong. As researchers, including the Oregon Secretary of State’s Audit Division, point out, there is no evidence that the mortgage interest deduction does anything to promote homeownership. And why would it, when the bulk of the dollars flow to those who don’t need help affording a home?
How to reform the mortgage interest deduction is not complicated. A bill introduced last session would have begun phasing out the deduction for tax filers with incomes of $200,000 and fully eliminated it for those making a quarter-million or more. It would have also ended the ability to deduct interest on a second home. This reform, mainly affecting the richest 5% of Oregonians, would save about $280 million per budget period — more than enough to fund the local housing needs cited by the bipartisan group of mayors.
To solve our state’s housing crisis, “(w)e need state leadership,” the mayors stressed in their letter. And what better demonstration of leadership than turning a wasteful housing behemoth into a program that serves the needs of Oregonians.
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