Builders push to keep mortgage deduction

WASHINGTON Any move by Congress to eliminate or sharply curtail themortgage interest deduction would roll through the housing marketlike a "tidal wave," according to the National Association of HomeBuilders' assessment of three recent independent studies.

"The conclusions reached in these studies should add somemomentum to a House resolution and a soon-to-be circulated Senateresolution endorsing the mortgage interest deduction as it nowstands," said Kent W. Colton, NAHB executive vice president.

Introduced by Rep. Marge Roukema (R-N.J.) and Rep. Les AuCoin(D-Ore.), the House resolution now has 173 co-sponsors - well on itsway to the 218 majority Roukema and AuCoin are seeking by April 15.A companion resolution was introduced in the Senate by Sen. DonaldRiegle (D-Mich.).

"These studies should be required reading for members ofCongress who may have felt the mortgage interest deduction could besacrificed to reduce the deficit," Colton added.

The studies were conducted by Kenneth Rosen of the Center forReal Estate and Urban Economics, University of California, Berkeley;Denise DiPasquale of the Joint Center for Housing Studies, HarvardUniversity, and John Savacool of Wharton Economic ForecastingAssociates, Bala Cynwyd, Pa.

"Eliminating the mortgage deduction would hit the housing marketlike a tidal wave," he said.

Colton said such a move would: Increase by 33 percent the after-tax total costs of housing. Reduce the aggregate disposable income of homeowners by an averageof $42 billion a year between now and 1997. Slow single-family housing construction as well as existing homesales. Curtail employment growth by 200,000 jobs in the first year and wipeout homeownership opportunities for about 1 million additionalhouseholds.

He also disputed contentions that if Congress moved against themortgage interest deduction, the cap would be set so high that itwould do little to disrupt the housing market.

Limiting the mortgage deduction to $12,000 for single taxpayersand $20,000 for joint returns would raise only $500 million in 1990or $7.5 billion over a five-year period, according to theCongressional Budget Office's revenue and budget options for reducingthe deficit published in February.

In other words, Congress would have to set the cap well belowthe $12,000/$20,000 level to generate a significant amount of new taxrevenue, he said.

"And to get the billions of dollars in additional tax revenuethat is needed for deficit reduction, Congress would have to cut thededuction for homeowners with annual incomes under $75,000 - theincome group that enjoys 65 percent of the benefits from the mortgagededuction."

Under those ceilings of $12,000 and $20,000, and at today's 11percent mortgage rates, a single taxpayer could assume a mortgagedebt of no larger than $109,000 and still write off the entireinterest payment, while a household filing a joint return couldassume a mortgage of no larger than $182,000 and still realize thefull interest deduction.

Colton said that housing has enjoyed favorable tax treatmentover the years because this country places a high priority onexpanding home ownership opportunities and the availability ofaffordable housing.

"In the last few years, we have seen what happens when thatfavorable tax status is withdrawn," he said, noting that multifamilyhousing construction has fallen nearly 40 percent since enactment ofthe 1986 Tax Reform Act, which eliminated almost all tax incentivesfor investment in rental housing.