Most homeowners don’t think of themselves as living in subsidized housing, but when the mortgage-interest deduction is taken into account, that’s exactly the case for most households in Oregon and Deschutes County, according to a new analysis by ApartmentList.com.

With the mortgage-interest deduction coming up in national tax-reform discussions, the apartment-listing website’s blog, Rentonomics, compared the federal government’s largest subsidy for homeowners with its largest program for low-income renters, Section 8 vouchers.

Mortgage-interest deductions cost the federal government $71 billion in 2015, the latest year for which data is available, while the government spent $29.9 billion on Section 8, ApartmentList said in a report released Wednesday.

In Deschutes County, income-tax filers claimed $54.9 million in federal mortgage-interest deductions in 2015, and the federal government spent $8.6 million on Section 8 vouchers.

“There’s better ways that money could be spent,” ApartmentList housing economist Chris Salviati said of the mortgage-interest deduction. “The research shows it doesn’t necessarily even have that huge of an impact on the market.”

To be sure, the mortgage-interest deduction is a tax subsidy rather than a direct-spending program like Section 8.

Salviati said comparing the two programs shows how policy benefits accrue to homeowners over renters, who Census data shows are twice as likely to be cost-burdened, meaning they spend more than 30 percent of their income on housing.

Not only do more federal resources go into tax deductions for homeowners, but a larger share of high-income households than middle-income households benefit, ApartmentList found. In Oregon, 62 percent of high-income households — those earning more than 120 percent of the area median income — deducted mortgage interest, compared with 25 percent of middle-income and 13 percent of low-income households receiving either subsidy, according to ApartmentList.

The mortgage-interest deduction has been a hot topic nationally and in Oregon this year. The Trump administration’s tax-reform plan calls for doubling the standard deduction from $12,000 to $24,000, which means households that now itemize and take advantage of the mortgage-interest deduction would no longer do so. The National Association of Realtors opposes that plan.

During Oregon’s 2017 legislative session, Realtors opposed a reform to Oregon’s mortgage-interest deduction, which mirrors the federal program. That bill, which died in committee, would have limited deductions to $15,000 and eliminated them for second-home mortgages. House Bill 2006 was pushed by the left-leaning think tank Oregon Center for Public Policy, which wanted to direct the money saved into other affordable-housing programs.

“This is seen as a mom-and-apple-pie kind of deduction,” said Juan Carlos Ordonez, communications director for the think tank. “It’s a deduction for upper-income and rich folks.”

That’s not true, especially in Oregon, which has no sales tax and relies on personal income and corporate excise taxes as its main sources of general-fund revenue, said Shawn Cleave, director of government affairs for the Oregon Association of Realtors.

With the state income-tax rate at 9 percent for middle-income earners, almost everyone is looking for deductions, Cleave said. “As soon as you own that property, even if it’s a starter home in Gates, Oregon, the probability you’re going to be in a position where you’re able to deduct that (interest) is very high,” he said.

Also, because of Oregon’s tax structure, the deduction makes mortgages more affordable than rent in a lot of cases, Cleave said. “It helps people at the beginning of their loan, when they need it most,” he said. “As an incentive for homeownership, it does work … pretty well.”

The fact that relatively fewer low- and middle-income households benefit from the government’s two largest housing subsidies points to a need for reform, Salviati said.

ApartmentList.com is calling for converting the mortgage-interest deduction to a credit, which any homeowner could claim, and lowering the maximum eligible mortgage, which is currently $1 million. Savings from mortgage-interest reform should be directed toward programs for low-income renters, he said.

—Reporter: 541-617-7860,
 kmclaughlin@bendbulletin.com

Editor’s note: This report has been changed from the original to clarify what mortgage-interest deductions cost the federal government in 2015.

Federal subsidies for renters v. homeowners

Nationwide:

• Section 8: $29.9 billion

• Mortgage interest deductions: $71 billion

Oregon:

• Section 8: $308.4 million

• Mortgage interest deductions: $1 billion

Deschutes County:

• Section 8 rental assistance: $8.6 million

• Mortgage interest deductions: $54.9 million

Source: 2015 data, ApartmentList.com, Rentonomics blog