I chose the word “exaggeration” very carefully. I did not say “myth” or “error.” Nobody disputes that the modern suburbs were subsidized at some level. I think it is important to note that a portion (roughly 1/4) of our state gas tax is returned to cities and counties for their local road systems. People who drive local roads much more than highways also benefit from that tax. It is not just for highways and bridges, nor should it be.

I think the issue of how the location of the urban interstates harmed the cities is a different topic from the original post and the question of highway financing. If we were to focus more on that point, I would probably agree almost completely with Rob. In fact, we just sat through a in-house lecture on that issue here at SMI two weeks ago.

Nobody here has anything against renters, nor would anyone here (at the risk of speaking for others) support any type of zoning laws against renting.

This discussion reminds me that I need to finish our informal project on which lifestyle is the most and least subsidized. Everyone is subsidized by others in many aspects of public goods. But I definitely think that the residents of rural areas and urban areas live a lifestyle more subsidized by others than the residents of typical suburbs. In other words, the taxes paid by suburban residents go to subsidize farming and urban communities more so than the reverse. Just an opinion… I could be wrong and make no claim to proof of it.

My point was this: the housing market is probably one of the least free markets in history. And like in the policy studies you mentioned, there is a tendency to criticize only those programs that attempt to correct the inequities/inefficencies that arise from government intervention in that market (in this case, over-supply and a dependence on housing as a wealth-builder). In America we spend on both sides of our problems; we help people move into newer and newer houses and neighborhoods and then have to pay to fix things for who or whatever is left behind. I agree that encouraging home ownership has proven to be a bad way to accomplish the latter in the past couple decades. But the comment about renters made me feel the urge to say a little bit about why these programs, even if they don’t work, might actually be as much the result of a fettered market as the representation of one.

Real estate has been one of the most important ways to pass on wealth from generation to generation since before WWII. That the middle class expanded as it did after the war illustrates pretty well why many of those groups who remain lower-class are the same that were systematically excluded from taking advantage of early home ownership promotion programs. This much is fact. I’m sure the cause of what makes renters so icky to some people can be traced back to whether or not one’s grandparents were in a position to get help buying a house in the 40s. As the wealth left, neighborhoods deteriorated. As the subsidies continue, those whose families missed out on the first round continue to fall further behind due in large part to their surroundings — and require more spending and ineffective government programs. You can’t demand that a stop be put to those programs without recognizing that it is government programs that require government programs in this case.

And there is hardly a consensus around anything about Randall O’Toole (except maybe his beard which is awesome). The New York Fed’s Andrew Haughwaut and several others have found that it is common for highway infrastructure to be paid for by revenue from non-benefiting jurisdictions in a series of articles from the late 90s and early 00s. He also suggests a cost-benefit test: Even if the government only facilitated the construction and maintenance of highways that were fully paid for exclusively by their users, if that action resulted in negative externalities in another area – especially those that exceed the benefits – then it is something that government should not be involved in. The University of Chicago’s Nathaniel Baum-Snow has shown that each interstate crossing a central city can be associated with something like an 18% drop in that central city’s population, and that central city populations would have risen by something like 8% had the highways not been built. If you can’t be compelled by the situation that has put many individuals in, think about how much is spent on inner-city problems at all levels of government and how those problems can make it more difficult to enjoy living in a metropolitan area.

So on the interstate issue, let’s make sure we’re debating the same point. Most would agree that it is a stretch to say that the interstate subsidy represents a direct transfer from cities to suburbs. But it seems very likely that residents of far-flung suburbs do not pay the true cost of living in the far-flung suburbs, in simple dollar terms.

And one more point on the mortgage interest deduction: you’re right that it would need to come with some fundamental changes. The deduction is only a deduction because it is easier for congress to hide than a cut in any tax rate. But what’s important to this discussion is the fact that the housing market is collateral damage in that arrangement.

@Rob,
This blog is about adding free-market based commentary to topical news stories. Christine wrote about a Post-Dispatch article that discussed housing prices and the effects of the $8 K tax credit. That is what we do here, and if it is cherry picking so be it. This is a blog; we have plenty of policy studies you can read at the main site if you want to read what we have to say about bigger issues.
I’d be perfectly happy to see the mortagage interest deduction go away if that was part of a comprehensive switch to a low and flat income tax system.
I don’t think there is anything wrong with deducting property taxes, otherwise you’d be paying taxes on money you already paid out for taxes.
The idea that city folks have subsidized the growth of the suburbs if one of the great exaggerations out there. The interstate highway system is the least subsidized form of individual transportation, thanks to the many positive aspects of the gas tax. Randal O’Toole has calculated that interstate highways are subsidized to the extent of a 1/2 cent per passenger mile, which is a dramatically lower subsidy than other types of transportation, espcially transit and passenger rail. Of course, most people at SMI would prefer to go more in the direction of tolled highways and bridges so we can make that subsidy even lower.

And I hate to nit-pick, but as I understand its use in contemporary pop economics, a cash subsidy like the first-time home buyer credit would not qualify as “nudging.”

I can cite papers (which will be included in an upcoming paper by Christine, Dr. Podgursky, and myself on property taxation), that argue that renters are more likely to support higher property taxes because they get the benefits of the services without paying the full cost of the taxes. Homeowners are more likly to weigh the costs and benefits of the proposed tax increase in their decisions.

One’s house is as effective at sheltering them whether it’s worth $100 or $1 million. Seeing people dupe themselves into thinking they had become rich because their house value was inflated was pretty sad.

I also disagree with George Bailey when he claimed that home ownership makes people better citizens. It really doesn’t. Most people are better off renting.

Whenever property values fall, the press cries that the sky is falling and it’s ruining the economy. In reality, falling house prices are GOOD, because it means people are more likely to be able to afford them without going into crushing debt for the rest of their lives. I would take a reasonable price over a silly government credit any day.