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Mortgage Deduction – Loophole for the Homeowner or Boondoggle for the Politician

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I read in the Wall Street Journal recently that the White House is considering of removing the Mortgage Deduction on Primary Homes.  Given the shortage of revenue Washington finds itself in this seems like a great way to raise revenue without risking the possible backlash for Raising Taxes.  A frequent sore point among those politicians seeking re-election.

There is a reason the Federal Government decided to provide a Mortgage Deduction and politician’s of all stripes  have grown very fond of benefits they reap from its existence.  There are now a very large number of constituencies that all get to influence how a home is built and what goes into a new home built today.  Politicians from the local zoning board to US senators all get to please constituents by adding a requirement here or a regulation there from the local city council to Washington DC and everywhere in between.  These things add TENS OF THOUSANDS of dollars to the cost of a home. 

Building CodesThere are innumerable constituencies that have various specific concerns that they want addressed or protected.  For example any land owner that wants to develop their property needs to pay for an environmental impact study on the property.  In this  study it is documented if any if any Endangered or Protected Species are present, any wetlands present  or if there are any other environmental concerns involving the project from eagles to snails.  It greatly affects how much the project will cost, and in some cases the land owner will need to purchase other property to Mitigate a condition on their own land.

Consider the insurance industry.  They want to see homes that can withstand forces of nature like High Winds, Floods, Earthquakes, and Fires so their claims go down.  As a result building codes require ever  more stringent structural standards, be they wind resistance, earthquake practices or  fire resistant materials.  On the fire side there is now a big push to require sprinklers in new construction even though there is little justification that it would save lives, since smoke detectors work very well in notifying occupants to leave a home when a fire occurs.

Now add the conservationists that want to see all homes become more  and more energy efficient and use less and less water.  In Florida the building code requires substantial improvements in energy efficiency with every adoption of a revised code. 

Next we have people that are concerned about the out gassing of products used in the building of a home so we watch Volatile Organic Compounds in paints and the adhesives used in OSB, Plywood and Particle Board.

On the electrical side Arc Fault Breakers are now required in panel boxes.  The earlier version of circuit breakers did ‘break’ the circuit when the rated amperage was exceeded but they weren’t as fast at doing it as the new required arc fault breakers.   This is in addition to the Ground Fault Interrupter Circuits that were required in wet areas earlier to protect us when  we stand in a puddle of water and turn on the blow dryer.   Tamper proof receptacles make it much harder to stick a bobby pin in an electrical outlet and they are now required as well.

Less Home for More MoneyI’m not saying any of these requirements are not a good idea or that there is not a benefit that new homes be better than homes built a few years earlier but the bottom line to all this is it all adds to the cost of a home.  If all you needed was a shelter that reasonably protected your family from the elements and provided a safe secure environment, the builders in America could produce that for far less than the typical entry level home.  Since it is mandated by the regulations and codes it is included in every home whether the user needs or can afford the features or not.  This raises the cost of housing beyond the reach of many and forces the use of a thirty year mortgage for most homeowners in order to pay for the home.  This is why the mortgage deduction was created.  Nobody screams every time a politician adds a requirement that will add $50 to the cost of every new home in America.  If it weren’t for the mortgage deduction that attitude might change.  

About Tom Greenawalt

Tom is a Licensed Builder in the State of Florida. He has been in the construction industry for 35 years building new homes in Pittsburgh, Washington DC, and Chicago before moving to Central Florida. The majority of Tom's career has on detached housing for entry level and first time move up buyers. He was with Maronda Homes for over 15 years.

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