Normally, around the perimeter of Phoenix, you see signs like this:
For the first time ever, today, I saw this sign:
This isn't about affordability. The rents on these homes are in the ballpark of what mortgage payments would be for buyers of the same homes. But, since they don't have access to credit, the households moving into these homes won't gain equity as nominal real estate values increase, and they won't have rental payments that are perpetually protected from inflation. The difference is huge, and we are seeing the echoes of those benefits to home ownership in the high rent inflation in the CPI and in the high returns to real estate in the national income accounts.
On the topic I touched on the other day, I think that if we didn't have the mortgage interest tax deduction, we might see more of this sort of thing. And, it would be ok. But, that would be in a context where households were choosing to be renters because of their individual circumstances. In today's context, households are choosing to live in these homes because they are locked out of the credit markets. And, many of the households that are well-off enough to get over the hump to get a mortgage and buy a house - households that are usually financially more secure - get a government subsidy.
I believe that home prices are currently below the values they would have in a context where mortgage credit was being generously distributed, even if we didn't have the mortgage tax deduction. And, on top of that advantage, we have the government basically writing those households a check.
The mortgage tax deduction amounts to an annual payment nearing $100 billion made from renting households to owning households. That's about 1/2 % of the economy, paid from the bottom half to the top half of economic households. Those owning households enjoy another tax break, relative to renters, that is probably even larger than the mortgage tax break, when they sell their homes with capital gains exemptions. (edit: The total between the two might be 1 1/2% of GDP annually. Please let me know in the comments if you have a source for the scale of the capital gains tax exemption.)
Lots of self righteous ink is spilled these days about inequality and a "rigged" system. But, a lot of this kind of stuff enjoys wide bi-partisan support. When you think about it, of course it would. Easy self-righteous indignation aimed at the bogeyman of the day is a heck of a lot more fun than trying to understand something as complex and counterintuitive as an economy. I am not holding my breath, waiting for my politically active friends to invite me to an angry march to the capital building against the mortgage interest deduction. And certainly there isn't going to be a march to eliminate corporate and capital gains taxes (which, among other things, is a tax on renters.)