The Sensitivity of Houseowner Leverage to the Deductibility of the Mortgage Interest

Patric Henry Hendershott, G. Pryce

    Research output: Contribution to journalArticle

    23 Citations (Scopus)

    Abstract

    Mortgage interest tax deductibility is needed to treat debt and equity financing of houses symmetrically. Countries that limit deductibility create a debt tax penalty that presumably leads households to shift from debt toward equity financing. The greater the shift, the less is the tax revenue raised by the limitation and smaller is its negative impact on housing demand. Measuring the financing response to a legislative change is complicated by the fact that lenders restrict mortgage debt to the value of the house (or slightly less) being financed. Taking this restriction into account reduces the estimated financing response by 20 percent (a 32 percent decline in debt vs a 40 percent decline). The estimation is based on 86,000 newly originated UK loans from the late 1990s. (c) 2006 Elsevier Inc. All rights reserved.

    Original languageEnglish
    Pages (from-to)50-68
    Number of pages18
    JournalJournal of Urban Economics
    Volume60
    Issue number1
    DOIs
    Publication statusPublished - Jul 2006

    Keywords

    • mortgage interest deductibility
    • homeowner leverage
    • debt tax penalty
    • fractional logit regression
    • IMPERFECT INFORMATION
    • INTEREST DEDUCTION
    • INVESTMENT
    • VARIABLES
    • MARKETS
    • DEBT

    Cite this

    The Sensitivity of Houseowner Leverage to the Deductibility of the Mortgage Interest. / Hendershott, Patric Henry; Pryce, G.

    In: Journal of Urban Economics, Vol. 60, No. 1, 07.2006, p. 50-68.

    Research output: Contribution to journalArticle

    Hendershott, Patric Henry ; Pryce, G. / The Sensitivity of Houseowner Leverage to the Deductibility of the Mortgage Interest. In: Journal of Urban Economics. 2006 ; Vol. 60, No. 1. pp. 50-68.
    @article{77f1a25f08cb4896b092d84cf9daace1,
    title = "The Sensitivity of Houseowner Leverage to the Deductibility of the Mortgage Interest",
    abstract = "Mortgage interest tax deductibility is needed to treat debt and equity financing of houses symmetrically. Countries that limit deductibility create a debt tax penalty that presumably leads households to shift from debt toward equity financing. The greater the shift, the less is the tax revenue raised by the limitation and smaller is its negative impact on housing demand. Measuring the financing response to a legislative change is complicated by the fact that lenders restrict mortgage debt to the value of the house (or slightly less) being financed. Taking this restriction into account reduces the estimated financing response by 20 percent (a 32 percent decline in debt vs a 40 percent decline). The estimation is based on 86,000 newly originated UK loans from the late 1990s. (c) 2006 Elsevier Inc. All rights reserved.",
    keywords = "mortgage interest deductibility, homeowner leverage, debt tax penalty, fractional logit regression, IMPERFECT INFORMATION, INTEREST DEDUCTION, INVESTMENT, VARIABLES, MARKETS, DEBT",
    author = "Hendershott, {Patric Henry} and G. Pryce",
    year = "2006",
    month = "7",
    doi = "10.1016/J.JUE.2006.01.003",
    language = "English",
    volume = "60",
    pages = "50--68",
    journal = "Journal of Urban Economics",
    issn = "0094-1190",
    publisher = "Academic Press Inc.",
    number = "1",

    }

    TY - JOUR

    T1 - The Sensitivity of Houseowner Leverage to the Deductibility of the Mortgage Interest

    AU - Hendershott, Patric Henry

    AU - Pryce, G.

    PY - 2006/7

    Y1 - 2006/7

    N2 - Mortgage interest tax deductibility is needed to treat debt and equity financing of houses symmetrically. Countries that limit deductibility create a debt tax penalty that presumably leads households to shift from debt toward equity financing. The greater the shift, the less is the tax revenue raised by the limitation and smaller is its negative impact on housing demand. Measuring the financing response to a legislative change is complicated by the fact that lenders restrict mortgage debt to the value of the house (or slightly less) being financed. Taking this restriction into account reduces the estimated financing response by 20 percent (a 32 percent decline in debt vs a 40 percent decline). The estimation is based on 86,000 newly originated UK loans from the late 1990s. (c) 2006 Elsevier Inc. All rights reserved.

    AB - Mortgage interest tax deductibility is needed to treat debt and equity financing of houses symmetrically. Countries that limit deductibility create a debt tax penalty that presumably leads households to shift from debt toward equity financing. The greater the shift, the less is the tax revenue raised by the limitation and smaller is its negative impact on housing demand. Measuring the financing response to a legislative change is complicated by the fact that lenders restrict mortgage debt to the value of the house (or slightly less) being financed. Taking this restriction into account reduces the estimated financing response by 20 percent (a 32 percent decline in debt vs a 40 percent decline). The estimation is based on 86,000 newly originated UK loans from the late 1990s. (c) 2006 Elsevier Inc. All rights reserved.

    KW - mortgage interest deductibility

    KW - homeowner leverage

    KW - debt tax penalty

    KW - fractional logit regression

    KW - IMPERFECT INFORMATION

    KW - INTEREST DEDUCTION

    KW - INVESTMENT

    KW - VARIABLES

    KW - MARKETS

    KW - DEBT

    U2 - 10.1016/J.JUE.2006.01.003

    DO - 10.1016/J.JUE.2006.01.003

    M3 - Article

    VL - 60

    SP - 50

    EP - 68

    JO - Journal of Urban Economics

    JF - Journal of Urban Economics

    SN - 0094-1190

    IS - 1

    ER -