Housing subsidies make little economic sense. They restrict mobility and encourage misallocation of resources. It’s better to have people move to where they can be productive than to be trapped by an underwater house in an area with little employment. In his review of Enrico Morretti’s New Geography of Jobs, John Tamny makes this point:
Looked at in terms of housing subsidies, it will forever be unknown how much growth we’ve lost in recent years alone for individuals being tied to dying locales thanks to investment in homes that have underlying mortgages underwater, that can’t be sold, or both. Moretti’s essential point is that the talented, or the “vital few” as economist Reuven Brenner likes to refer to them, are where the lion’s share of job creating economic activity will take place. If so, housing subsidies that make us less mobile in pursuit of the talent clusters are the height of cruelty.
The innovative elite not only foster a jobs multiplier as mentioned earlier, they also, Moretti finds, raise the productivity of the unskilled. Assuming more in the way of apartment rentals among Americans, it could be deduced that more would be able to migrate to where the innovators are now, and where they’re going to next.
Along the lines of the above, Moretti makes the essential observation that quite unlike Italians (Moretti grew up in Italy) who tend to live where they grew up, Americans are constantly moving. Absolutely. Americans are “restless amid abundance” to quote De Tocqueville (as Moretti does), and they are because they’re constantly in search (I would argue this a function of Americans descending from restless immigrants, hence the need for more of them) of better opportunities. If so, the last thing our federal minders would want to do would be to subsidize a stationary state. Housing subsidies are just that, so let’s abolish them in order to facilitate what makes us so great. End of story.
But remember that our politicial system is based on geographical diversity. Politicians from Michigan don’t prosper when people move to California. They do well when people can’t move to California. Housing subsidies such as the mortgage interest deduction are broadly popular because they preserve homeowner’s paper wealth, but they’re popular for politicians too because they ensure a stable and reliable electorate.