Giving households credit: How changes in the US tax code could promote homeownership

Recent U.S. government proposals intend to increase the homeownership rate by roughly 2.5 percentage points, to 67.5%, by the year 2000. The possible use of the U.S. income tax code is virtually ignored in these proposals. Using a user-cost framework incorporated into a tenure choice equation and both macro- and micro-level analyses, we demonstrate that the revenue-neutral replacement of the current deductibility of home mortgage interest and property taxes with a tax credit of the appropriate level alone can increase aggregate homeownership rates in the range of 3 to 5%. Moreover, these increases are even higher in lower-income neighborhoods, suggesting that such a policy could address the supplementary community development purpose of neighborhood stabilization. (C) 1999 Elsevier Science BN. All rights reserved.