Promoting Wealth Building Through Homeownership

Abstract

Current tax policies, while commonly thought to promote homeownership, have generally left low-income homeowners behind other homeowners. Using a number of simplifying assumptions, our estimates of lifetime homeowner tax subsidies suggest that the average homeowner in the lowest-income quintile may receive cumulative tax subsidies that are roughly one-thirteenth the size of those received by someone in the highest-income quintile. From an asset- and wealth-building perspective, the tax system thus places low-income households at a very large disadvantage - both in their quest to become homeowners and in what happens after they achieve homeownership status. About the Authors: Kenneth Spong is in the Banking Research Department at the Federal Reserve Bank of Kansas City. Spong has been with the Federal Reserve since 1973 and is engaged in research on a variety of topics related to the regulation, supervision, and performance of banks and other financial institutions. This research includes: the ownership and management structure of banks and the effect on bank performance, industrial loan companies and the public policy issues, small business lending, and the differential impact on low- and high-income households and neighborhoods from the tax deductibility of mortgage interest and property taxes. This research has been published in a wide variety of Federal Reserve, academic and banking trade publications. In addition, Spong has written a book on bank regulation - Banking Regulation: Its Purposes, Implementation, and Effects - which is now in its fifth edition. Ken Spong has a MA in economics from the University of Chicago and a BA in mathematics and economics from the University of Kansas. Kelly D. Edmiston is a Senior Economist in the Regional, Public, and Community Affairs Division of the Federal Reserve Bank of Kansas City. There he conducts research on issues involving regional economic growth, economic development, community development, consumer finance, and public finance. His research has been published in several leading economics and policy journals, and he has presented his research findings at numerous national conferences and professional meetings. Prior to joining the Federal Reserve Bank of Kansas City, Kelly was Assistant Professor of Economics and Senior Associate at the Fiscal Research and International Studies Centers at the Andrew Young School of Policy Studies at Georgia State University and served as a consultant for the World Bank. He holds BA and PhD degrees from the University of Tennessee.