Home Sweet Home: Government's Role in Reaching the American Dream

IMF Working Papers, August 1, 2011

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Canonical URL: Home Sweet Home: Government's Role in Reaching the American Dream

This paper investigates the role of government intervention in achieving the American dream of homeownership.
The study analyzes the role of tax deductions in housing finance, including their impact on homeownership and housing consumption.
The role of the Government Sponsored Enterprises in facilitating the creation of a secondary market for mortgage-backed securities is analyzed, as well as the role of the Federal Housing Administration.
Cross-country comparisons of how housing is financed in other industrial countries are provided, emphasizing how other countries have been able to achieve comparable homeownership rates as the United States in a less complicated and fiscally cheaper system.
Country experiences of successfully phasing out government intervention are also analyzed.

Examination of tax deductions in housing finance and their effects on:
- homeownership rates
- housing consumption
Analysis of Government Sponsored Enterprises (GSEs) and their role in creating a secondary market for mortgage-backed securities.
Analysis of the Federal Housing Administration's role in housing finance.
Cross-country comparison of housing finance systems in other industrial countries.
Case studies of countries that have phased out government intervention successfully.

Cross-country evidence shows other industrial countries have achieved comparable homeownership rates to the United States while operating less complicated and fiscally cheaper systems.
The paper highlights fiscal costs and systemic complexity associated with U.S.-style interventions (tax deductions; GSEs; FHA).

Reconsideration of tax deductions in housing finance given their impacts on consumption and ownership incentives.
Reassessment of government guarantees and the role of GSEs in fostering secondary mortgage markets.
Evaluation of alternative housing finance models used in other industrial countries that may be less fiscally costly and less complex.
Lessons from country experiences on successfully phasing out government intervention.

Subject: Financial institutions, Housing, Housing prices, Loans, Mortgages, National accounts, Prices, Tax allowances, Taxes
Keywords: Australia and New Zealand, deduction cap, finance system, Global, government guarantees, guarantee scheme, homeownership, Housing, Housing finance, Housing prices, interest deductibility, interest deduction, Loans, mortgage interest deduction, mortgage interest payment, mortgage interest relief, mortgage market, mortgage originator, mortgage tax, Mortgages, property tax, Securitize mortgage, Tax allowances, tax expenditures, tax relief, Veterans' Administration mortgage, WP