Two three-flat apartment buildings with boarded-over windows

Pulitzer Prize-winning sociologist Matthew Desmond recently published a piece in the New York Times Magazine outlining how flawed federal tax policies prop up home prices while leaving renters without the help they need to stay in their homes. The biggest culprit is a program called the mortgage-interest deduction (MID), which allows for home­owners to deduct the interest on their first and second mortgages while filing taxes. Beyond the question of why well-off families need the government’s help buying a vacation home, this deduction program is rooted in the same racist institutions that designed the segregation that is still so pervasive in our cities.

How does MID work?

MID is one of our country’s many tax programs that are only useful for those who already have vast resources. In order to file for MID, a home­owner must itemize all their deductions. Most tax­payers don’t worry about itemizing their deductions because they don’t make enough money to justify it. For example, a household that makes $50,000 a year (just under the Chicago median income, about $63,000 for a family of two) would only be able to claim around $15 per month under MID. However, a household making $200,000 per year would claim nearly $400 per month in MID benefits alone. As a result, MID programs cost Americans $71 billion per year, with four-fifths of those dollars going to families with six-figure incomes. By 2019, US expenditures on the MID program are expected to exceed $96 billion.

Because the MID works to aggregate savings for homeowners, it also artificially inflates the cost of homes, making those who already own property richer while making it more difficult for first-time home­buyers to access the same savings.

The Racist Roots of MID

MID was initially a small interest deduction program for businesses. The program expanded as the GI Bill came into effect after World War II. The GI Bill, which was the US’s largest single social welfare program ever, worked to make mortgages affordable for veterans, who were the first generation of Americans to largely own their own homes. However, this was only true for a certain subset of Americans. In order to get the GI Bill passed as part of his New Deal package, President Roosevelt had to appease the South by excluding particular groups of employees from the new benefits packages. These employee groups were disproportionately made up of African Americans, making programs like Social Security and unemployment primarily benefits for white workers.

Between Veterans Affairs policies and the Federal Housing Administration’s redlining policies (which assessed investment risk in particular neighborhoods based on their racial and ethnic majorities), African Americans were shut out of programs designed to help families build wealth, largely on the value of their homes. This gap in access to generational wealth, home­ownership, and credit and banking services persists today.

What does this mean for renters today?

In the US, home­owners are worth an average $195,400. Renters are worth, on average, $5,400. This huge disparity reveals why home­ownership is such a basic tenet of how Americans imagine financial security. In the housing policy world, affordable housing is considered those units that cost 30 percent of a renter’s income. However, renters in Chicago often pay far beyond 30 percent of their income to find homes. And while mortgage-holders are handed subsidies to boost their home values, benefits that help low-income families make rent are shrinking. In the US, only about one in four households that qualifies for government housing assistance actually gets it. In 2016, Chicago had 42,506 families waiting for Housing Choice Vouchers (HCV, also known as Section 8 vouchers, which help offset the cost of renting on the private market). Many more families qualify for the HCV program, but the waiting list is only open to families who have been displaced by public housing demolitions. Meanwhile, Chicagoans are being evicted from their homes at a rate of about 64 families per day. These evictions do not account for those additional families who are forced out of their homes by sudden rent hikes.

Renters who are stuck in the private market are left to pay subsequently more expensive rents each year without any mechanism for building their own equity or safety net. Meanwhile, the MID fails to work as a program that encourages home­ownership as it targets those wealthy enough to already own (sometimes multiple) homes.

What are our solutions?

In his piece for the New York Times Magazine, Desmond points to the need for MID reform but also notes that the program is mostly politically untouchable. Some recent proposals have suggested capping the MID program or changing the available deduction, but these solutions would continue to benefit those who least need the help. Desmond also notes the desperate need for more naturally-occurring affordable housing stock across the US, which allows for tenants to find homes in their budget on the private market without having to wait years on a waiting list for government assistance.

In a handful of cities, renters are paving a new way forward and developing programs that would allow tenants to build equity via their rental units. In Cincinnati, Ohio, an organization called Renting Partnerships is working with low-income renters in the rapidly gentrifying neighborhood of Over-the-Rhine in an equity exchange program whereby renters in affordable housing developments sign on to an equity lease agreement. Renters who participate are given work assignments around the property, pay rent on time, and participate in community meetings in order to earn financial credits. Meanwhile, tenants are also provided with supportive services through local food pantries and job placement programs. Because of the nature of tenant investment in the building, resident turnover and repair costs are low and landlord savings are placed into a program fund. After five years, tenants become eligible to trade their credits for cash. Renting Partnerships has recently moved to expand their model to Cleveland, as well.

While tax code reform is an important element of how we build a more just Chicago, we should also take a closer look at programs that center low-income families and their particular needs.